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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB


[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 [FEE REQUIRED]

         For the fiscal year ended December 31, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         For the transition period from                    to

                  Commission file number:  33-37078

                    FNC BANCORP, INC. (A GEORGIA CORPORATION)
                I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1910615
                420 SOUTH MADISON AVENUE, DOUGLAS, GEORGIA 31533
                        TELEPHONE NUMBER: (912) 384-1100

           Securities registered pursuant to Section 12(b) of the Act

                                      None

           Securities registered pursuant to Section 12(g) of the Act

                      Common Stock, Par Value $1 Per Share

Check whether the registrant  (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No ____

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B is not contained herein,  and will not be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

The registrant's total revenues for the fiscal year ended December 31, 1998 were
$4,701,165.

As of March 1, 1999,  registrant had outstanding 411,173 shares of common stock,
$1 par value per share,  which is registrant's only class of common stock. There
is no established market for the common stock of the registrant.  Therefore, the
aggregate  market  value  of the  voting  stock  held  by  nonaffiliates  of the
registrant is not known.

                       DOCUMENTS INCORPORATED BY REFERENCE


                                      None


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                                     PART I.

ITEM 1.  DESCRIPTION OF BUSINESS

The Company

         FNC Bancorp,  Inc. (the "Company") was  incorporated  under the laws of
Georgia on  September  19,  1990 to serve as a bank  holding  company  for First
National Bank of Coffee County (In Organization) (the "Bank"). A charter for the
Bank was issued by the Office of the Comptroller of the Currency (the "OCC") and
the Bank commenced operations on September 23, 1991.

         The Company's offices are located at 420 South Madison Avenue, Douglas,
Georgia and its telephone  number is (912) 384-1100.  The Company  maintains its
offices at the office of First National Bank of Coffee County at this address.

         On January 8, 1991,  the Company  commenced an offering of a minimum of
360,000 and a maximum of 500,000 shares of its Common Stock, $1.00 par value per
share, to the public at a price of $10.00 per share to raise funds to capitalize
and  acquire  all of the  stock of the Bank.  The  Company  completed  its stock
offering  with the sale of 405,710  shares by December 31, 1991. Of the proceeds
of the stock sold,  $3,500,000  was used to acquire all of the stock of the bank
upon its being issued a charter and commencing operations.  The Company received
all  required  federal and state  regulatory  approvals to become a bank holding
company.

         The Company has been  organized  to  facilitate  the Bank's  ability to
serve its current and future customers' requirements for financial services. The
holding company  structure  provides  flexibility for expansion of the Company's
banking   business   through  the  possible   acquisition  of  other   financial
institutions  and the provision of additional  banking-related  services which a
traditional  commercial  bank may not provide under  present  laws.  The holding
company  structure  also  affords  additional  flexibility  in terms of  capital
formation and financing opportunities. Nevertheless, the primary activity of the
Company  initially  is to be  ownership  and  operation  of the Bank.  While the
Company  may seek in the  future to  acquire  additional  banks or bank  holding
companies  or to  engage  in  other  activities  appropriate  for  bank  holding
companies  under  appropriate  circumstances  as  permitted  by law, the Company
currently  has no  plans,  understandings  or  agreements  concerning  any other
activities. The results of operations and financial condition of the Company for
the foreseeable future will be determined primarily by the results of operations
and financial condition of the Bank.

The Bank

General

         On August 15, 1990, the Organizers of the Company and the Bank filed an
application with the OCC to charter the Bank as a national  banking  association
under the name "First  National  Bank of Coffee  County" to conduct  business in
Douglas,  Coffee County, Georgia and the surrounding area. The Organizers of the
Company  and the Bank were  Robert L.  Cation,  Milton G.  Clements,  William C.
Ellis,  Jr.,  Ralph G. Evans,  A. Curtis  Farrar,  Jr.,  Norman E.  Fletcher and
Timothy J. Palmer.  The Bank was authorized to commence its banking  business by
the OCC issuing a national  bank charter for the Bank.  Operations  commenced on
September 23, 1991. The OCC had granted preliminary  approval of the application
on December 14, 1990.  Final approval of the  application  was subject to, among
other conditions, capitalization of the Bank at a minimum of $3,500,000 prior to
the Bank opening for business.

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         The Bank's business consists primarily of attracting  deposits from the
general  public and,  with these and other  funds,  making  real  estate  loans,
consumer loans,  business loans,  residential and commercial  construction loans
and other investments.  In addition to deposits, sources of funds for the Bank's
loans and other investments include  amortization and prepayment of loans, sales
of participation in loans, sales of investment securities and may include in the
future, sales of loans. The principal sources of income for the bank is interest
and fees  collected on loans and, to a lesser  extent,  interest  and  dividends
collected on other investments.

         The Bank's  earnings  depend  primarily on its "net  interest  income,"
which is the difference  between the interest income it receives from its assets
(primarily its loans and other  investments)  and the interest expense (or "cost
of  funds")  which it pays on its  liabilities  (primarily  its  deposits).  Net
interest  income is a function of (i) the  difference  between rates of interest
earned on interest-earning assets and rates of interest paid on interest-bearing
liabilities  (the "interest rate spread" or "net interest  spread") and (ii) the
relative amounts of interest-earning  assets and  interest-bearing  liabilities.
When interest-earning assets approximate or exceed interest-bearing liabilities,
any positive  interest rate spread will generate net interest  income.  The Bank
adheres to an asset and liability  management  strategy  intended to control the
impact of interest rate  fluctuations  upon the Bank's  earnings and to make the
yields on its loan portfolio and other  investments  more responsive to its cost
of funds, in part by closely matching the maturities of interest-earnings assets
and  interest-bearing  liabilities,  while still maximizing net interest income.
Nevertheless,  the Bank is affected  by changes in the levels of interest  rates
and other factors beyond its control.

Philosophy and Strategy

         The Bank  serves as a  community  bank in a market  dominated  by large
regional  banks.  The  philosophy  and  strategy  of the Bank with regard to its
initial  operations is to emphasize its local  ownership and  management and its
prompt and responsive personal service in order to attract customers and acquire
a market share now  controlled  by other  financial  institutions  in the Bank's
market area. Most of the shares sold in the Company's  public offering were sold
in the Coffee  County area,  and this local  ownership  has helped to provide an
immediate customer base. The Bank's President and the other Organizers also have
significant  contacts in Coffee County,  which has provided additional customers
and is expected to continue to do so.

         The Bank's  strategy is to attract as  customers  small-to-medium  size
manufacturing,  retail,  professional  and  industrial  businesses  as  well  as
middle-to-upper-income  consumers and professionals.  These customers  typically
provide  a higher  level of  profitability  and a lower  degree  of risk than do
customers of the larger banks and are prime  customers of smaller banks. As more
and more small banks are merged out of existence,  the opportunities to fill the
void  created by these  mergers are  enhanced  for small de novo banks that have
both adequate capital resources and experienced management. The Bank's President
has  experience  in  servicing  these  types of  customers  at  other  financial
institutions  and uses that experience to continue to provide  services to these
types of  customers.  See "Item 10.  Directors  and  Executive  Officers  of the
Registrant." Management of the Bank also has an active officer and director call
program to describe the  products,  services and  philosophy of the Bank to both
existing and prospective customers.

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Market Area

         The Bank's primary service area ("PSA") is Coffee County,  Georgia, and
the Bank is located in Douglas,  the county seat and largest city in the county.
The Bank's  secondary  service area includes the surrounding  areas of Atkinson,
Bacon, Ben Hill,  Berrien,  Irwin,  Jeff Davis and Ware Counties.  Access to the
area is provided by U.S.  Highways  441 and 221 and State  Highways 135 and 158,
all intersecting in Douglas.  Douglas also has access to four interstate highway
systems,  I-10, I-16, I-75, and I-95, all within 100 miles of the city. The area
is  comprised  of  a  diversified   mix  of  commercial,   retail,   industrial,
agricultural and residential areas.

         Population  in the  PSA  was  approximately  29,592  in  1990  and  was
estimated  at 33,031 in 1996,  an  increase  of almost  11.6% in six years.  The
population is projected to be 35,880 by 2001. The population is well distributed
by age and is slightly more than 51% female. The median age of the population is
32.2 years.

Services

Loan Portfolio.  As a full service commercial bank, the Bank offers a wide range
of commercial loans,  consumer loans and real estate loans consisting  primarily
of short and intermediate-term  residential lot loans,  residential construction
loans,   commercial   construction  loans,   agricultural  loans  and  permanent
residential and commercial real estate loans.  Commercial loans consist of loans
made to  individual,  corporate  and  partnership  borrowers  for a  variety  of
business  purposes and includes Small Business  Administration  loans.  Consumer
loans consist primarily of installment loans to individuals for personal, family
and household purposes,  including loans for automobiles,  home improvements and
investments.

         A majority of the Bank's  construction  loans  consists of  residential
construction loans. These loans typically involve a higher degree of risk to the
Bank than many other types of loans due to the borrower's greater sensitivity to
the effect  that  changes in  economic  conditions  may have on the success of a
project.  The Bank  intends  to  compensate  for the  increased  risk in part by
charging higher  interest rates and fees on these types of loans.  The Bank also
offers residential first mortgage loan products with fifteen year maximum terms.
Long-term   fixed  rate  mortgage  loans  are  originated  by  the  Bank  for  a
correspondent  Bank  and  are  not  held  in  the  Bank's  loan  portfolio.  All
construction,  acquisition and  development  loans will be limited to 80% of the
appraised  value of the  property  upon  completion  and will be  secured by the
related real estate and construction property.

         The Bank intends to originate  variable rate loans and short term fixed
rate consumer loans of five years or less. See "Asset and Liability  Management"
below.


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Deposits.  The Bank  offers a wide  range of  commercial  and  consumer  deposit
services  that are typically  available in most banks and savings  institutions,
including  interest bearing and  noninterest-bearing  checking  accounts,  money
market checking  accounts,  negotiable order of withdrawal  ("NOW") accounts and
savings and other time deposits of various types ranging from daily money market
accounts  to  longer-term  certificates  of  deposit.  In  addition,  retirement
accounts such as Individual  Retirement  Accounts are available.  All depositors
are insured by the Federal Deposit Insurance  Corporation (the "FDIC") up to the
maximum amount permitted by law. The Bank's  depositors  consist of individuals,
businesses and their employees  within the Bank's market area,  obtained through
personal  solicitation  by  the  Bank's  officers  and  directors,  direct  mail
solicitation  and  advertisement  in the local media.  The Bank pays competitive
interest  rates  on time and  savings  deposits  and has a  service  charge  fee
schedule  competitive  with other  financial  institutions  in the Bank's market
area,  covering such matters as maintenance fees on checking accounts,  per item
processing fees on checking  accounts,  returned check charges and other similar
fees.

Other  Services.  The Bank provides  other services such as official bank checks
and  money  orders,  MasterCard  and Visa  credit  cards,  safe  deposit  boxes,
travelers'  checks,  bank by mail, direct deposit of payroll and social security
checks,  U.S. Savings Bonds,  wire transfer of funds, a night depository and ATM
access.  The Bank also  provides an array of  personalized  banking  services to
middle-to upper-income individuals, with emphasis on knowledge of the individual
financial needs and objectives of these customers and timely response.  The Bank
seeks to promote long-term relationships with these types of customers.

Correspondent Banking

         Correspondent banking involves the provision of services by one bank to
another  bank which  cannot  provide that service for itself from an economic or
practical  standpoint.  The Bank has correspondent  banking  relationships  with
larger  commercial banks for investments,  liquidity,  federal funds lines, loan
participation,  check clearing services and consulting  services.  These include
Bankers  Bank  (Atlanta,  Georgia),  Regions  Bank  (Gainesville,  Georgia)  and
SunTrust Bank (Atlanta, Georgia).

         The Bank sells loan  participation to one or more correspondent or area
banks with respect to loans that exceed the Bank's lending limit.


Asset and Liability Management

         The  primary  assets of the Bank  consists  of its loan and  investment
portfolios.  The Bank's loan portfolio consists primarily of variable rate loans
or fixed rate loans that  mature in less than five  years.  The  majority of the
Bank's  securities  investments  consist of  obligations  of the United  States,
obligations  guaranteed as to principal and interest by the United States, other
taxable  securities and certain  obligations of states and  municipalities.  The
Bank engages in federal  funds  transactions  with its  principal  correspondent
banks and currently  acts  primarily as a net seller of such funds.  The sale of
federal  funds  amounts  to a  short-term  loan from the Bank to  another  bank.
Ultimately,  the  Bank  will  strive  to  maintain  a loan  portfolio  equal  to
approximately  75% of assets and an investment  portfolio equal to approximately
16% of the assets,  with the  remaining 9% of the Bank's  assets  consisting  of
cash, fixed assets and other assets.

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         Deposit accounts,  including  transaction  accounts,  time deposits and
certificates of deposit,  represent the majority of the liabilities of the Bank.
The Bank  does not seek  brokered  certificates  of  deposit  or other  types of
brokered deposits.

         Efforts are made  generally to match  maturities  and rates of the loan
and investment  portfolios with those  deposits,  although exact matching is not
possible.  Substantially  all of the loans with maturities in excess of one year
are  negotiated  on a variable  interest  rate basis or with a demand  repayment
provision.  By pricing  loans on a variable  rate  structure  or by keeping  the
maturities of the loan and investment portfolios relatively short term, the Bank
is able to negotiate loan rates or to reinvest securities proceeds at prevailing
market rates,  thereby helping maintain a generally  consistent  spread over the
interest  rates paid by the Bank on the deposits which are used to fund the loan
and investment portfolios.

         The Bank has established  policies and procedures designed to ensure an
acceptable  asset/liability  mix is monitored on a timely  basis,  with a report
reflecting the  interest-sensitive  liabilities  being prepared and presented to
the Bank's Asset/Liability Committee on a quarterly basis. The objective of this
policy is to control interest-sensitive assets and liabilities so as to minimize
the impact of substantial movements in interest rates on the Bank's earnings.

         The Bank  has  developed  an  internal  lending  policy  for the  Bank,
including  appropriate  lending  limits for each  officer of the Bank based upon
such  criteria as the  experience  of the  individual  officer.  Management  has
appropriate procedures pertaining to lending and has established a lending limit
above which the approval of the Board of  Directors  is required.  Additionally,
the Bank is subject to certain  statutory  requirements  which generally provide
that the Bank may  grant  loans  and  extensions  of  credit  that are not fully
secured  to a single  borrower  up to  $525,000  (15% of the  Bank's  unimpaired
capital and surplus). The Bank also may grant additional loans and extensions of
credit to a single borrower up to $350,000 (10% of the bank's unimpaired capital
and surplus),  provided such additional loans and extensions of credit are fully
secured.

         The Bank does not, as a matter of course, finance purchases of raw land
or speculative  commercial or industrial  developments.  The Bank generally does
not make loans outside of Coffee County and the surrounding  seven county market
area and seeks to obtain a broad  diversification  of loan  customers.  The Bank
will  request  correspondent  banks to  participate  in loans when loan  amounts
exceed the Bank's legal limits or internal lending policies.  See "Correspondent
Banking" above.

Competition

         Banks generally compete with other financial  institutions  through the
banking  products and services  offered,  the pricing of services,  the level of
service provided, the convenience and availability of services and the degree of
expertise  and the personal  manner in which  services are offered.  In the PSA,
other than the Bank,  there are two  regional  banks,  three local banks and one
savings bank.  These include  SunTrust,  Citizens  Security Bank, First Liberty,
Southtrust,  Southeastern Bank and Colony Bank. The Bank encounters  competition
from most of these financial institutions. There is only one savings institution
in the PSA. In the conduct of certain  areas of its banking  business,  the Bank
also  competes  with  credit  unions,  consumer  finance  companies,   insurance
companies,  money market mutual funds and other financial institutions,  some of
which are not subject to the same degree of regulation and restrictions  imposed
upon the Bank.

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         Many of the Bank's competitors have substantially greater resources and
lending  limits  than the Bank has and  offer  certain  services,  such as trust
services,  that the Bank  currently  does not provide.  Moreover,  many of these
competitors  have  numerous  branch  offices and other  facilities in the PSA, a
competitive  advantage that the Bank initially does not have.  Nevertheless,  in
evaluating the competition in the PSA, the management and the Board of Directors
believe that there will be sufficient  growth in banking  activities  for all of
these  institutions,  including the Bank, to be successful,  based in part on an
average annual growth of  approximately  4.9% in commercial bank deposits in the
PSA over the last four years. Furthermore, management and the Board of Directors
believe that the  extensive  banking  experience  and contacts in the PSA of its
President  and  the  other  board  members  will  enable  the  Bank  to  compete
effectively  without  offering  unusually  high  interest  rates for deposits or
unusually low interest rates for loans. The Bank's relatively small size permits
it to offer more personalized service than its competitors, which is expected to
provide the Bank with a competitive advantage.

Employees

         At December 31, 1998,  the Bank  employed 27 full-time  employees and 6
part-time  employees.  The Company has no employees.  Holding company duties are
performed  by bank  employees  and where such  duties are  significant,  related
compensation  and benefit costs are  allocated to and  reimbursed by the holding
company.  The Bank considers its relationship  with its employees to be good. To
the  extent  possible,  the Bank  employs  persons  experienced  in the  banking
profession  and  persons who are  natives or long time  residents  of the Coffee
County area.

Supervision and Regulation

General

         As a bank holding company,  the company is subject to regulation by the
Board of  Governors  of the  Federal  Reserve  System  (the  "Federal  Reserve")
pursuant to the federal Bank Holding Company Act (the "BHCA") and by the Georgia
Department  of Banking and Finance (the  "Georgia  Department")  pursuant to the
Georgia Bank Holding Company Act (the "GBHCA").  The Company also is required to
file certain  reports with, and otherwise  comply with the rules and regulations
of, the Securities and Exchange  Commission (the "Commission") under the federal
securities laws.

         The Bank is a national bank and is subject to the  supervision  of, and
will be regularly examined by, the OCC. In addition, the Bank's deposit accounts
are insured up to applicable  limits by the bank  insurance  fund of the Federal
Deposit Insurance Corporation (the "FDIC") and the Bank,  therefore,  is subject
to regulation by the FDIC. As a member of the Federal Reserve  System,  the Bank
also is subject to regulation by the Federal Reserve.

         FIRREA was signed into law on August 9, 1989.  FIRREA primarily affects
the regulation of savings associations  ("thrifts") and savings and loan holding
companies  rather  than the  regulation  of  national  banks  and  bank  holding
companies such as the Bank and the Company. However, FIRREA does contain certain
provisions  affecting  banks  and  bank  holding  companies,  including  without
limitation,    provisions   affecting   deposit   insurance   premiums,   thrift
acquisitions,   liability  of  commonly  controlled   depository   institutions,
receivership  and  conservatorship   rights  and  procedures  and  substantially
increased penalties for violation of banking statutes, regulations and orders.

                                       7
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         To the extent that the following  information  describes  statutory and
regulatory  provisions,  it is  qualified  in its  entirety by  reference to the
particular statutory and regulatory provisions.  Any change in applicable law or
regulation  may have a material  effect on the  business  and  prospects  of the
Company and the Bank.

Regulation of the Company

Federal  Law. The Company is a bank  holding  company  within the meaning of the
BHCA and the GBHCA. As a bank holding  company,  the Company is required to file
with the Federal Reserve an annual report and such additional information as the
Federal  Reserve may require  pursuant to the BHCA. The Federal Reserve also may
make examinations of the Company and each of its subsidiaries.

         The Federal Reserve has adopted capital adequacy  guidelines for use in
its  examination and regulation of bank holding  companies.  Prior to January 1,
1991, the guidelines  employed two measures of capital:  primary  capital (which
included,  among other things, common stock, perpetual preferred stock, surplus,
undivided  profits and loan loss reserves and excluded most  intangible  assets)
and total capital (primary  capital plus certain forms of subordinated  debt and
limited life  preferred  stock).  The  guidelines  called for a minimum ratio of
primary  capital  to total  consolidated  assets of 5.5% and a minimum  ratio of
total capital to total  consolidated  assets of 6.0%. The Federal Reserve issued
risk-based capital adequacy  guidelines which went into effect in stages through
1992.

         Under the Federal Reserve's  risk-based  standards,  an entity's assets
and  off-balance  sheet  activities  are  categorized  into  one  of  four  risk
categories,  with  either a 0%,  20%,  50% or 100%  amount of capital to be held
against those assets.  In addition,  the guidelines  divide capital  instruments
into Tier 1 (core)  capital and Tier 2  (supplemental)  capital.  The risk-based
capital adequacy guidelines require that: (i) Tier 2 capital may not exceed 100%
of Tier 1 capital,  although  certain  Tier 2 capital  elements  are  subject to
additional  limitations;  (ii)  assets and off  balance  sheet items be weighted
according to risk; and (iii) the total capital to risk-weighted  assets ratio be
7.25% by the end of 1990, and 8% by the end of 1992.  The risk-based  guidelines
apply  on a  consolidated  basis  to only  those  bank  holding  companies  with
consolidated  assets of $150 million or more. For bank holding  companies,  like
the Company,  with less than $150 million in consolidated assets, the risk-based
guidelines generally are applied on a bank-only basis.

         If the capital of a bank holding  company falls below minimum  required
levels,  the bank holding company may be denied approval to acquire or establish
additional  banks or non-bank  businesses,  as  discussed  below.  Bank  holding
companies may be compelled by bank regulatory  authorities to invest  additional
capital in the event a  subsidiary  bank  experiences  either  significant  loan
losses or rapid  growth of loans or deposits.  In  addition,  the company may be
required to provide  additional capital to any additional banks it acquires as a
condition to obtaining the approvals and consents of regulatory  authorities  in
connection with such acquisitions.

                                       8
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         Bank holding companies are required by the BHCA to obtain approval from
the Federal  Reserve prior to acquiring,  directly or  indirectly,  ownership or
control of more than 5% of the  outstanding  shares of any class of voting stock
of  any  bank  or  bank  holding  company.  Bank  holding  companies  and  their
subsidiaries  also are  prohibited  from  acquiring  any  voting  shares  of, or
interest in, any banks located  outside of the state in which the  operations of
the bank holding  company's  subsidiaries  are located unless the acquisition is
authorized  specifically  by the  statutes  of the state in which the  target is
located. Several southeastern states, including Georgia, have enacted reciprocal
legislation that authorizes interstate  acquisitions of banking organizations by
bank holding companies within the southeastern United States, subject to certain
conditions and restrictions.  As a result of this  legislation,  the company may
become a candidate for  acquisition  by, or may itself seek to acquire,  banking
organizations located in those states that have enacted reciprocal  legislation.
(See,  however,  certain  restrictions  on  acquisitions  imposed  by the  GBHCA
discussed  below).  Additionally,  under the BHCA, as amended pursuant to FIRREA
and as implemented by an amendment to the Federal  Reserve  regulations,  a bank
holding company may acquire a savings association,  as defined in FIRREA, in any
state without  regard to whether the bank holding  company can operate a bank in
that state.

         The  BHCA  also   prohibits  bank  holding   companies,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or controlling banks or other permissible  subsidiaries.  The Federal Reserve is
authorized  to approve,  among other  things,  the ownership of shares by a bank
holding  company in any company the activities of which the Federal  Reserve has
determined  to be so closely  related to banking or to managing  or  controlling
banks as to be a proper  incident  thereto.  Notice to and review by the Federal
Reserve of such activities would be necessary before the Company could engage in
such  activities.  The Federal  Reserve is  empowered to  differentiate  between
activities  that are initiated de novo by a bank holding company or a subsidiary
and activities commenced by acquisition of a going concern.

         The  Federal  Reserve  has been  granted  enforcement  powers over bank
holding  companies and  nonbanking  subsidiaries  to forestall  activities  that
represent  unsafe or unsound  practices or constitute  violations of law.  These
powers may be exercised through the issuance of cease-and-desist orders or other
actions.  The Federal  Reserve also is empowered to assess civil money penalties
against  companies or individuals  who violate the BHCA or orders or regulations
thereunder,  to order  termination  of  non-banking  activities  of  non-banking
subsidiaries of bank holding companies and to order termination of ownership and
control  of  a  non-banking  subsidiary  by  a  bank  holding  company.  Certain
violations may also result in criminal penalties.

         The status of the Company as a registered  bank holding  company  under
the BHCA does not exempt it from certain  federal and state laws and regulations
applicable to corporations  generally,  including,  without limitation,  certain
provisions of the federal securities laws.

         The Bank and the  Company is  "affiliated"  within  the  meaning of the
Federal  Reserve Act.  Certain  provisions of the Federal  Reserve Act establish
standards  for the  terms  of,  limit the  amount  of and  establish  collateral
requirements  with  respect  to any  loans  or  extensions  of  credit  to,  and
investments in,  affiliates by the Bank as well as set arms-length  criteria for
such transactions and for certain other  transactions  (including payment by the
Bank for services and under any contract)  between the Bank and its  affiliates.
In  addition,  related  provisions  of the  Federal  Reserve Act and the Federal
Reserve  regulations limit the amounts of, and establish required procedures and
credit  standards  with  respect  to,  loans and other  extensions  of credit to
officers,  directors and principal shareholders of the Bank, the Company and any
subsidiary of the Company, and to related interests of such persons.

                                       9
<PAGE>



         Under Section 106(b) of the Bank Holding Company Act Amendments of 1970
(12 U.S.C. ss. 1972), the Bank is prohibited from extending  credit,  selling or
leasing  property or furnishing  any service to any customer on the condition or
requirement  that the customer (i) obtain any  additional  property,  service or
credit from the Company,  the Bank or any other subsidiary of the Company,  (ii)
refrain from  obtaining any property,  credit or service from any  competitor of
the  Company,  the Bank or any  subsidiary  of the Company or (iii)  furnish any
credit,  property or service to the Company,  the Bank or any  subsidiary of the
Company.

         As a bank holding company,  the Company is required to give the Federal
Reserve  prior written  notice of any purchase or redemption of its  outstanding
equity  securities if the gross  consideration  for the purchase or  redemption,
when  combined  with  the net  consideration  paid  for all  such  purchases  or
redemptions  during  the  preceding  12  months,  is equal to 10% or more of the
Company's  consolidated  net worth.  The Federal  Reserve may disapprove  such a
purchase or redemption if it determines that the proposal  constitutes an unsafe
or unsound practice, would violate any law, regulation, Federal Reserve order or
directive or any condition  imposed by, or written  agreement  with, the Federal
Reserve.

         In November 1985, the Federal Reserve  adopted its Policy  Statement on
Cash  Dividends Not Fully Covered by Earnings.  The Policy  Statement sets forth
various guidelines that the Federal Reserve believes that a bank holding company
should  follow in  establishing  its dividend  policy.  In general,  the Federal
Reserve stated that bank holding  companies  should not pay dividends except out
of current earnings and unless the prospective rate of earnings retention by the
holding  company appears  consistent  with its capital needs,  asset quality and
overall financial condition.

         The  activities of the Company also are restricted by the provisions of
the  Glass-Steagall  Act of 1933 (the "Act"). The Act prohibits the Company from
owning subsidiaries engaged principally in the issue,  flotation,  underwriting,
public  sale or  distribution  of  securities.  The  interpretation,  scope  and
application  of the  provisions  of the Act  currently  are  being  reviewed  by
regulators and legislators. The outcome of the current examination and appraisal
of the  provisions  in the Act and the effect of such  outcome on the ability of
bank holding  companies  to engage in  securities-related  activities  cannot be
predicted.

         The Georgia  Department  has  established a minimum level of capital to
total assets of 5%, with certain  adjustments,  on a consolidated basis for bank
holding  companies.  The capital  guidelines  assume  adequate  liquidity  and a
moderate degree of risk in the loan and investment portfolios as well as any off
balance  sheet  activities.   In  assessing   compliance  with  the  guidelines,
therefore, the Georgia Department reviews the relationship of on and off balance
sheet risks to capital and requires those  institutions  with high or inordinate
levels of risk to adhere to higher  capital  standards.  Bank holding  companies
whose operations  involve,  or are exposed to high or inordinate degrees of risk
are  expected  to hold  additional  capital to  compensate  for such  risks.  In
addition,  bank holding companies engaging in significant  nonbanking activities
typically require higher capital ratios than do banks alone.




                                       10
<PAGE>
         The BHC Act, as amended by the  interstate  banking  provisions  of the
Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994  (the
"Interstate  Banking  Act"),  which  became  effective  on  September  29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding  companies,  and a bank holding  company located in Georgia may now
acquire a bank located in any other state,  and any bank holding company located
outside Georgia may lawfully acquire a Georgia-based  bank,  regardless of state
law to the contrary, in either case subject to certain deposit-percentage, aging
requirements,  and other restrictions.  The Interstate Banking Act also provides
that,  after  June 1,  1997,  national  and state  chartered  banks  may  branch
interstate   through   acquisitions  of  banks  in  other  states.  By  adopting
legislation  prior to that  date,  a state  has the  ability  either to "opt in"
(which  Georgia  has  done)  and  accelerate  the date  after  which  interstate
branching  is  permissible  or  "opt  out"  and  prohibit  interstate  branching
altogether.

Regulation of the Bank

         As a national banking association,  the Bank is subject to supervision,
examination  and regulation by the OCC under the National Bank Act. It also is a
member of the Federal  Reserve  System and subject to  regulation by the Federal
Reserve  under the Federal  Reserve Act. The deposits of the Bank are insured by
the FDIC to the  full  extent  provided  by law and,  therefore,  the Bank  pays
insurance  assessments  to, and is subject to regulation and  examination by the
FDIC.

         The FDIC  currently  insures  the  deposits  of each  member  bank to a
maximum of $100,000  per  depositor.  For this  protection,  the Bank will pay a
semi-annual   statutory  assessment  and  will  be  subject  to  the  rules  and
regulations of the FDIC.  The FDIC has the authority to prevent the  continuance
or  development  of  unsound  and  unsafe  banking  practices.  The FDIC is also
authorized, among other things, to approve conversions,  mergers, consolidations
and  assumption  of deposit  liability  transactions  between  insured banks and
uninsured banks or institutions, and to prevent capital or surplus diminution in
such transactions where the resulting, continuing, or assumed bank is an insured
nonmember state bank. The FDIC premium rate is set by the Financial Institutions
Reform  Recovery and  Enforcement  Act  ("FIRREA")  which was signed into law on
August 9, 1989. FIRREA primarily affects the regulation of savings  associations
and savings and loan holding  companies rather than the regulation of commercial
banks  and  bank  holding  companies.   However,  FIRREA  does  contain  certain
provisions  affecting  banks  and  bank  holding  companies,  including  without
limitation,    provisions   affecting   deposit   insurance   premiums,   thrift
acquisitions,   liability  of  commonly  controlled   depository   institutions,
receivership  and  conservatorship   rights  and  procedures  and  substantially
increased penalties for violation of banking statutes, regulations and orders.

         In 1991, the Federal Deposit Insurance  Corporation  Improvement Act of
1991 (Act) was enacted.  The Act affects all federally  insured  banks,  savings
banks and thrifts.  The Act contains a $70 billion  recapitalization of the Bank
Insurance  Fund (BIF) by  significantly  increasing the amount that the FDIC can
borrow from the Treasury.  The FDIC must assess  premiums that are sufficient to
give the BIF  reserves  of $1.25 for each $100 of insured  deposits.  Additional
significant provisions of the Act include: requiring prompt corrective action by
regulators  if  minimum  capital  standards  are  not  met;  establishing  early
intervention  procedures for "significantly"  undercapitalized (to be defined by
the FDIC)  institutions;  limiting FDIC reimbursement of uninsured deposits when
large banks fail; requiring an annual regulatory  examination;  and imposing new
auditing and accounting requirements, effective for fiscal years beginning on or
after January 1, 1993,  including  management and auditor  reporting on internal
controls over financial reporting and on compliance with laws and regulations.

                                       11
<PAGE>




         Effective for fiscal years  beginning on or after January 1, 1993,  the
Act requires FDIC-insured  depository institutions with assets in excess of $150
million to file an "annual  report" with the federal  regulatory  agencies  that
will be available for public  inspection.  This requirement can be satisfied for
subsidiaries of a bank holding company by an audit of the consolidated financial
statements of the holding company. In addition, the Act requires that the annual
report must include an auditor's report on management's assertions regarding the
effectiveness  of internal  controls  pertaining  to financial  reporting and on
agreed upon procedures  concerning compliance with specific laws and regulations
designated by federal regulatory agencies.  The management and auditor reporting
requirements  may be  satisfied at the holding  company  level,  depending  upon
various   criteria  for  asset  levels  and  CAMEL  ratings  of  the  individual
subsidiaries.  However, all FDIC-insured depository institutions over $9 billion
will require the additional management and auditor reports.

         Federal  and  Georgia  laws   regulate   many  aspects  of  the  Bank's
operations,   including  branch  offices,  remote  facilities,  lending  limits,
borrowing,   permitted  investments,   declaration  of  dividends,  mergers  and
acquisitions,  electronic  funds transfers,  deposits  reserve  requirements and
interest rates payable on deposits and chargeable on loans.  The Bank is subject
to applicable  Georgia laws that do not conflict  with, or are not preempted by,
federal  banking laws,  including  Georgia laws  limiting the maximum  allowable
rates of interest on loans and extensions of credit to customers of the Bank.

         Similar to the Federal Reserve's former capital requirements applicable
to the Company,  prior to January 1, 1991,  the OCC  required  Banks to maintain
minimum primary capital equal to 5.5% of total assets and total capital equal to
6% of  total  assets,  each  as  defined  and  adjusted  pursuant  to the  OCC's
regulations.  Also  like the  Federal  Reserve,  the OCC has  issued  risk-based
capital rules  requiring (i) at least 50% of a national  bank's total capital to
consist of common and certain other equity capital;  (ii) assets and off balance
sheet items to be weighted  according to risk;  (iii) Tier 1 capital to equal or
exceed  4%  of  total  assets  (see  below);  and  (iv)  the  total  capital  to
risk-weighted  assets  ratio to be 7.25% by the end of 1990 and 8% by the end of
1992.

         Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's shareholders.  To the extent necessary,
if any such assessment is not paid by any shareholder  after notice,  the OCC is
authorized  to sell the stock of such  shareholder  to satisfy  the  deficiency.
National banks also are subject to legal  limitations on the amount of dividends
they can pay.  The prior  approval  of the OCC is  required  if the total of all
dividends  declared  by a national  bank in any  calendar  year will exceed such
bank's net  profits  (as defined by  statute)  for that year  combined  with its
retained net profits for the preceding two years, less any required transfers to
surplus or to a fund for the retirement of any preferred stock. Other rules that
are  administered by the OCC and that are applicable to national banks relate to
issuance of  securities,  establishment  of branches,  limitations  on credit to
subsidiaries   and  other  aspects  of  the  business  and  activities  of  such
subsidiaries.  The OCC has broad  authority  to  prohibit  national  banks  from
engaging  in unsafe or  unsound  banking  practices  and  periodically  examines
national  banks  to  determine   their   compliance   with  applicable  law  and
regulations.  National banks also must make periodic  reports of their condition
to the OCC.



                                       12
<PAGE>




         Certain  federal  legislation,  including the  Depository  Institutions
Deregulation  and  Monetary  Control  Act  of  1980  and  the  Garn-St.  Germain
Depository  Institutions  Act  of  1982,  has  had  a  significant  impact  upon
competition  among  financial  institutions.  In  particular,  banking  laws and
regulations  enacted  since 1980 have  increased  substantially  the  ability of
savings institutions to compete with commercial banks for deposits.

Prompt Corrective Action

         The  Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991
("FDICIA")  establishes  a system of prompt  corrective  action to  resolve  the
problems of  undercapitalized  institutions.  Under this  system,  which  became
effective  in December  1992,  the federal  banking  regulators  are required to
establish five capital  categories (well  capitalized,  adequately  capitalized,
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized)  and to take certain mandatory  supervisory  actions,  and are
authorized to take other discretionary  actions, with respect to institutions in
the three  undercapitalized  categories,  the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized.  The federal
banking  regulators have specified by regulation the relevant  capital level for
each category.

         Under the final agency rules  implementing the prompt corrective action
provisions an institution that (i) has a Total  Risk-Based  Capital Ratio of 10%
or greater, a Tier 1 Risk-Based  Capital Ratio of 6% or greater,  and a Leverage
Ratio of 5% or greater and (ii) is not subject to any written agreement,  order,
capital  directive,   or  prompt  corrective  action  directive  issued  by  the
appropriate  federal  banking  regulator  is deemed to be well  capitalized.  An
institution  with a Total  Risk-Based  Capital Ratio of 8% or greater,  a Tier 1
Risk-Based Capital Ratio of 4% or greater,  an a Leverage Ratio of 4% or greater
is considered to be adequately capitalized.  A depository institution that has a
Total  Risk-Based  Capital  Ratio of less than 8%, a Tier 1  Risk-Based  Capital
Ratio of less than 4%, or a Leverage  Ratio of less than 4% is  considered to be
undercapitalized.  A depository  institution that has a Total Risk-Based Capital
Ratio of less than 6%, a Tier 1 Risk-Based  Capital  Ratio of less than 3%, or a
Leverage   Ratio  of  less  than  3%,   is   considered   to  be   significantly
undercapitalized,  and an  institution  that has a  tangible  equity  capital to
assets   ratio   equal  to  or  less  than  2%  is   deemed  to  be   critically
undercapitalized.  For purposes of the  regulation,  the term "tangible  equity"
includes  core  capital  elements  counted as Tier 1 Capital for purposes of the
risk-based  capital  standards,   plus  the  amount  of  outstanding  cumulative
perpetual  preferred stock  (including  related  surplus),  minus all intangible
assets with certain exceptions.  A depository institution may be deemed to be in
a  capitalized  category  that is lower than is indicated by its actual  capital
position if it receives an unsatisfactory examination rating.

                                       13
<PAGE>




         An institution that is categorized as  undercapitalized,  significantly
undercapitalized,  or  critically  undercapitalized  is  required  to  submit an
acceptable  capital   restoration  plan  to  its  appropriate   federal  banking
regulator. Under FDICIA, a bank holding company must guarantee that a subsidiary
depository  institution meets its capital  restoration plan,  subject to certain
limitations.  The  obligation of a controlling  holding  company under FDICIA to
fund  a  capital  restoration  plan  is  limited  to  the  lesser  of  5%  of an
undercapitalized  subsidiary's  assets or the amount required to meet regulatory
capital  requirements.   An  undercapitalized   institution  is  also  generally
prohibited  from  increasing  its average  total  assets,  making  acquisitions,
establishing  any branches,  or engaging in any new line of business,  except in
accordance with an accepted capital restoration plan or with the approval of the
FDIC. In addition,  the appropriate federal banking regulator is given authority
with respect to any undercapitalized  depository  institution to take any of the
actions  it  is  required  to  or  may  take  with  respect  to a  significantly
undercapitalized  institution  as described  below if it determines  "that those
actions are necessary to carry out the purpose" of FDICIA.

         For  those  institutions  that are  significantly  undercapitalized  or
undercapitalized  and either fail to submit an  acceptable  capital  restoration
plan or fail to implement an approved capital  restoration plan, the appropriate
federal  banking  regulator must require the  institution to take one or more of
the following  actions:  (i) sell enough shares,  including  voting  shares,  to
become  adequately  capitalized;  (ii)  merge  with  (or  be  sold  to)  another
institution  (or holding  company),  but only if grounds exist for  appointing a
conservator  or  receiver;  (iii)  restrict  certain  transactions  with banking
affiliates as if the "sister bank" exception to the  requirements of Section 23A
of the Federal Reserve Act did not exist; (iv) otherwise  restrict  transactions
with  bank  or  non-bank  affiliates;  (v)  restrict  interest  rates  that  the
institution  pays  on  deposits  to  "prevailing  rates"  in  the  institution's
"region;"  (vi)  restrict  asset  growth or reduce  total  assets;  (vii) alter,
reduce, or terminate activities;  (viii) hold a new election of directors;  (ix)
dismiss any director or senior  executive  officer who held office for more than
180 days immediately  before the institution became  undercapitalized,  provided
that in requiring dismissal of a director or senior officer,  the regulator must
comply with certain  procedural  requirements,  including the opportunity for an
appeal in which the  director or officer  will have the burden of proving his or
her value to the institution;  (x) employ "qualified" senior executive officers;
(ix) cease accepting deposits from correspondent depository institutions;  (xii)
divest certain nondepository  affiliates which pose a danger to the institution;
or (xiii) be divested by a parent  holding  company.  In  addition,  without the
prior approval of the  appropriate  federal banking  regulator,  a significantly
undercapitalized  institution  may not pay any  bonus  to any  senior  executive
officer or increase the rate of compensation for such officer.

         At December 31, 1998, the Company's  bank  subsidiary had the requisite
capital levels to qualify as well capitalized.

                                       14
<PAGE>



FDIC Insurance Assessments

         Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system
for  insured   depository   institutions  that  takes  into  account  the  risks
attributable  to  different   categories  and   concentrations   of  assets  and
liabilities.  The new system, which went into effect on January 1, 1994, assigns
an institution to one of three capital  categories:  (i) well capitalized;  (ii)
adequately capitalized;  and (iii) undercapitalized.  These three categories are
substantially  similar  to the prompt  corrective  action  categories  described
above,  with the  "undercapitalized"  category  including  institutions that are
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized  for prompt corrective action purposes.  An institution is also
assigned by the FDIC to one of three  supervisory  subgroups within each capital
group. An  institution's  insurance  assessment rate is then determined based on
the capital category and supervisory category to which it is assigned. Under the
final   risk-based   assessment   system,   there  are  nine   assessment   risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied. Assessment rates for members of
both the Bank Insurance Fund ("BIF") and the Savings Association  Insurance Fund
("SAIF")  for the  first  half of 1995  ranged  from 23 basis  points  (0.23% of
deposits) for an institution in the highest category (i.e.,  "well  capitalized"
and  "healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest  category  (i.e.,   "undercapitalized"   and   "substantial   supervisory
concern").  These rates were  established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period of
time.

         Once the designated ratio for the BIF was reached in May 1995, the FDIC
was authorized to reduce the minimum  assessment  rate below the 23 basis points
and to set future assessment rates at such levels that would maintain the fund's
reserve  ratio at the  designated  level.  In  August  1995,  the  FDIC  adopted
regulations reducing the assessment rates for BIF-member banks. Subsequently, on
November 14, 1995, the FDIC announced that,  beginning in 1997, it would further
reduce the deposit insurance premiums for 92% of all BIF members that are in the
highest  capital and  supervisory  categories to $2,000 per year,  regardless of
deposit size.

         Under the FDIA,  insurance  of deposits may be  terminated  by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.

                                       15
<PAGE>



Safety and Soundness Standards

         The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory  Improvement  Act of  1994,  requires  the  federal  bank  regulatory
agencies to prescribe  standards,  by  regulations  or  guidelines,  relating to
internal  controls,   information  systems  and  internal  audit  systems,  loan
documentation,  credit underwriting,  interest rate risk exposure, asset growth,
asset quality,  earnings,  stock valuation and compensation,  fees and benefits,
and such  other  operational  and  managerial  standards  as the  agencies  deem
appropriate. The federal bank regulatory agencies have adopted, effective August
9, 1995, a set of guidelines prescribing safety and soundness standards pursuant
to FDICIA, as amended.  The guidelines  establish general standards  relating to
internal  controls  and  information  systems,   internal  audit  systems,  loan
documentation,  credit  underwriting,  interest rate exposure,  asset growth and
compensation,  fees, and benefits.  In general,  the guidelines  require,  among
other things, appropriate systems and practices to identify and manage the risks
and exposures  specified in the guidelines.  The guidelines  prohibit  excessive
compensation  as an unsafe and unsound  practice  and describe  compensation  as
excessive  when the amounts paid are  unreasonable  or  disproportionate  to the
services performed by an executive  officer,  employee,  director,  or principal
shareholders.  The federal  banking  agencies  determined  that stock  valuation
standards were not appropriate.  In addition,  the agencies adopted  regulations
that authorize,  but do not require,  an agency to order an institution that has
been given notice by an agency that it is not  satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified, an
institution  fails  to  submit  an  acceptable  compliance  plan or fails in any
material respect to implement an accepted compliance plan, the agency must issue
an order  directing  action to  correct  the  deficiency  and may issue an order
directing other actions of the types to which an undercapitalized association is
subject  under the  "prompt  corrective  action"  provisions  of  FDICIA.  If an
institution  fails to comply with such an order,  the agency may seek to enforce
such order in judicial  proceedings  and to impose  civil money  penalties.  The
federal bank regulatory  agencies also proposed guidelines for asset quality and
earnings standards.

        Federal banking regulations applicable to all banks, among other things,
(i) provide federal bank  regulatory  agencies with powers to prevent unsafe and
unsound  banking  practices;  (ii)  restrict  preferential  loans  by  banks  to
"insiders"  of  banks;  (iii)  require  banks  to keep  information  on loans to
principal  shareholders  and  executive  officers;  and  (iv)  prohibit  certain
director and officer interlocks between financial institutions.



                                       16
<PAGE>



Monetary Policy

        Banking is a business  that depends on interest rate  differentials.  In
general,  the  difference  between  the  interest  rates paid by the Bank on its
deposits and other  borrowings and the interest rates received on loans extended
to its customers and on securities  held in its  portfolios  comprises the major
portion of the Bank's earnings.

        The  earnings and growth of the Bank and of the Company are affected not
only by general economic conditions,  both domestic and foreign, but also by the
monetary and fiscal policies of the United States and its agencies, particularly
the Board. The Board implements  national  monetary policy (as opposed to fiscal
policy),  such as seeking to curb  inflation and combat  recession,  by its open
market operations in the United States government securities, adjustments in the
amount of industry  reserves  that banks and other  financial  institutions  are
required to  maintain  and  adjustments  to the  discount  rates  applicable  to
borrowings by banks from the Federal Reserve System. The actions of the Board in
these areas  influence  the growth of bank loans,  investments  and deposits and
also affect  interest rates charged and paid on deposits.  The nature and impact
of any future changes in monetary policies cannot be predicted with certainty.

Other Regulatory Matters

        The Board,  in 1985,  issued a policy  statement  on the payment of cash
dividends by bank holding companies.  In the statement,  the Board expressed its
view that a bank holding company  experiencing  earnings weakness should not pay
cash dividends  exceeding its net income or that can be funded only in ways that
weaken the holding company's financial health, such as by borrowing.

        The  United  States  Congress  and the  Georgia  General  Assembly  have
periodically  considered and adopted legislation that has resulted in, and could
further result in deregulation  of both banks and other financial  institutions.
Such legislation could modify or eliminate geographic  restrictions on banks and
bank  holding  companies  and current  prohibitions  against  banks  engaging in
certain non-banking activities. Such legislative changes could place the Company
in more direct competition with other financial  institutions,  including mutual
funds,  securities  brokerage firms,  insurance companies and investment banking
firms.  The effect of any such legislation on the business of the company cannot
be accurately predicted. The Company cannot predict what other legislation might
be enacted or what other regulations might be adopted, or if enacted or adopted,
the effect thereof.

Taxation

General.  In  general,  the  Company and the Bank is taxed in the same manner as
other  corporations  under the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  although the Code contains certain rules which may affect the taxation
of banks to a greater degree than other corporations. The general rate structure
and certain of these special rules are discussed below.

Rates.  Corporation  income is subject to  graduated  federal  income tax rates,
beginning  at 15% of the  corporation's  first  $50,000 of taxable  income,  and
increasing to a maximum rate of 34% with respect to taxable  income in excess of
$75,000.  However,  taxable  income that falls between  $100,000 and $335,000 is
subject to an additional 5% surcharge, up to a maximum surcharge of $11,750.

                                       17
<PAGE>



Bad Debt  Reserves.  The use of the  reserve  method of  computing  the bad debt
deduction  is no  longer  available  to  any  bank  which,  either  alone  or in
combination with all members of its  parent-subsidiary  controlled group, has an
average  adjusted  basis in its  total  combined  assets  of in  excess  of $500
million.  Such a bank must use the specific  charge-off  method of deducting bad
debts.  Because the company has assets of less than $500 million, it is eligible
to  use  the  reserve  method,  but  is  limited  to the  experience  method  of
calculating  additions to its bad debt reserve.  The experience  method measures
the ratio of actual  bad debts to total  outstanding  loans  based on a six-year
moving average.

Interest Expense on Tax-Exempt Obligations.  In general, a bank is not permitted
to deduct that portion of its interest expense allocable to tax-exempt  interest
income.  The  allocation of a bank's  interest  expense to  tax-exempt  interest
income is based on the relative  proportion of the bank's total average adjusted
basis in its tax-exempt  obligations to its total average  adjusted basis in all
of its assets.  There is an  exception  to this  disallowance  rule for interest
expense  allocable  to  "qualified   tax-exempt   obligations,"  which  must  be
designated as such by the issuer and which are not private activity bonds.

Net Operating  Losses.  Net operating  losses of a bank generally may be carried
back three taxable years and carried  forward 15 taxable years.  An exception to
the general rule permits the portion of a net operating loss incurred after 1986
and before 1994 which is  attributable to bad debt losses to be carried back ten
years and forward at least five years.

Alternative  Minimum Tax. All corporations,  including banks, are subject to the
corporate alternative minimum tax. For corporations, the alternative minimum tax
rate is 20% of the  alternative  minimum  taxable  income  ("AMTI") in excess of
certain exemption amounts ($40,000,  phased out when AMTI exceeds $150,000). The
alternative  minimum  tax is  payable  to the  extent  it  exceeds  regular  tax
liability.  It is possible  for a taxpayer  such as the Company to be liable for
alternative minimum tax even if its regular tax liability is zero.

        In computing AMTI, a taxpayer must include certain items not included in
the computation of regular taxable income.  Financial  institutions must include
in AMTI the difference  between the amount added to the bad debt reserve for the
year and the amount  which  would  have been  deducted  for bad debts  using the
actual experience method. For all corporations, AMTI includes certain tax-exempt
income  on  private  activity  bonds  and  75% of  the  difference  between  the
corporation's  "current  adjusted  earnings"  and its AMTI  (determined  without
regard to this item). A corporation's "current adjusted earnings" means its AMTI
(determined  without regard to this item), with certain  adjustments,  including
the addition of tax-exempt income.

Future Requirements

           Statutes and  regulations  are  regularly  introduced  which  contain
wide-ranging  proposals for altering the structure,  regulations and competitive
relationships  of the nation's  financial  institutions.  It cannot be predicted
whether or in what form any proposed  statute or  regulation  will be adopted or
the extent to which the business of FNC Bancorp, Inc. or its Subsidiary Bank may
be affected by such statute or regulation.


                                       18
<PAGE>



ITEM 2.  DESCRIPTION OF PROPERTY

        The  Company's  principal  executive  offices  are  located at 420 South
Madison Avenue,  Douglas,  Georgia.  This location is in the southern portion of
downtown  Douglas,  which is believed to be the most rapidly  growing section of
Douglas. This location was chosen because of its convenience to both the central
downtown  area and the retail and  professional  expansion  on the south side of
Douglas.  In  addition,   this  site  offers  good  visibility  to  the  one-way
south-bound  traffic on Peterson  Avenue and provides  access to customers  from
Cherry  Street and Madison  Avenue.  The Board of  Directors  are  dedicated  to
maintaining the viability of the downtown Douglas area and believe that the Bank
building adds an attractive building to the downtown area while avoiding traffic
congestion.

        The Organizers formed a partnership, the CEF Partnership, which obtained
an option to purchase a 3.46 acre site at the above location at a purchase price
of $330,000,  which is  approximately  $20,000 below the appraised  value of the
property.  On December 28, 1990,  the CEF  Partnership  exercised  its option to
purchase  the  property  from the seller,  Douglas  Peanut and Grain Co.,  whose
president,  Ralph G. Evans,  is an  Organizer  of the Company and the Bank.  The
purchase price for the option was $31,800,  all of which was credited toward the
purchase price of the property.  The Bank used $330,000 of the proceeds from the
sale of its stock to the Company to reimburse the  Organizers for the payment of
the  purchase  price of the option and to complete the purchase of the site from
the CEF Partnership.

        During  1992,  the  Bank  completed  construction  of  its  headquarters
building  on the site  purchased  from the  Partnership.  Construction  cost and
furniture, fixtures and equipment totaled approximately $1.3 million.

ITEM 3.  LEGAL PROCEEDINGS

         Neither the Company nor its  subsidiary  bank is a party to, nor is any
of their property the subject of, any material pending legal proceedings,  other
than the ordinarily routine proceedings  incidental to the business of the Bank,
nor to the knowledge of the  management of the Company are any such  proceedings
contemplated or threatened against it or its subsidiary.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

         No  matters  were  submitted  to a vote of the  Company's  shareholders
during the fourth quarter of 1998.



                                       19
<PAGE>


                                     PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         SECURITY HOLDER MATTERS

        (a)      There currently is no public market for the Common Stock.

        (b)      As of March 1, 1999, there were approximately 360 holders of 
                 record of the Common Stock.

        (c)      The Company has never  declared or paid a cash dividend but 
                 expects to do so in the future.  The payment of  dividends  by
                 national  banks is  restricted  by statute and  regulation. 
                 See "Item 1.  Description of Business  Supervision and
                 Regulation."






                                       20
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

         The   Company's   1998   Annual   Report   on  Form   10-KSB   contains
forward-looking  statements in addition to historical  information.  The Company
cautions  that there are  various  important  factors  that could  cause  actual
results  to  differ  materially  from  those  indicated  in the  forward-looking
statements;  accordingly,  there can be no assurance that such indicated  result
will be realized.  These factors include legislative and regulatory  initiatives
regarding deregulation and restructuring of the banking industry; the extent and
timing  of  the  entry  of  additional  competition  in the  Company's  markets;
potential business strategies,  including acquisitions or dispositions of assets
or internal restructuring, that may be pursued by the Company; state and Federal
banking  regulations;  changes in or application of environmental and other laws
and regulations to which the Company is subject;  political,  legal and economic
conditions  and  developments;  financial  market  conditions and the results of
financing  efforts;  changes in commodity  prices and interest  rates;  weather,
natural disasters and other catastrophic  events; and other factors discussed in
the Company's  filings with the  Securities and Exchange  Commission,  including
this Annual Report on Form 10-KSB. The words "believe", "expect",  "anticipate",
"project" and similar expressions signify  forward-looking  statements.  Readers
are cautioned not to place undue reliance on any forward-looking statements made
by or on behalf of the Company.  Any such  statement  speaks only as of the date
the statement was made. The Company undertakes no obligation to update or revise
any forward-looking  statements.  Additional information with respect to factors
that may cause  results to differ  materially  from those  contemplated  by such
forward-looking  statements is included in the Company's  current and subsequent
filings with the Securities and Exchange Commission.

General

         The   Company's   principal   asset  is  its  ownership  of  the  Bank.
Accordingly,  the Company's  results of operations are primarily  dependent upon
the results of  operations of the Bank.  The Bank conducts a commercial  banking
business  which  consists of  attracting  deposits  from the general  public and
applying those funds to the origination of commercial,  consumer and real estate
loans (including  commercial loans  collateralized  by real estate).  The Bank's
profitability  depends primarily on net interest income, which is the difference
between interest income generated from interest-earning  assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing  liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the   relative   amounts  of   interest-earning   assets  and   interest-bearing
liabilities,  and the  interest  rate  paid and  earned on these  balances.  Net
interest income is dependent upon the Bank's interest rate spread,  which is the
difference between the average yield earned on its  interest-earning  assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets  approximates  or  exceeds  interest-bearing  liabilities,  any  positive
interest rate spread will generate interest income.  The interest rate spread is
impacted by interest rates, deposit flows and loan demand. Additionally,  and to
a lesser  extent,  the Bank's  profitability  is affected by such factors as the
level of noninterest income and expenses,  the provision for loan losses and the
effective tax rate. Noninterest income consists primarily of loan and other fees
and income from the sale of investment securities.  Noninterest expenses consist
of compensation  and benefits,  occupancy-related  expenses,  deposit  insurance
premiums paid to the FDIC and other operating expenses.

                                       21
<PAGE>



Results of Operations For Years Ended December 31, 1998 and 1997

         The Company's  results of operations  are  determined by its ability to
effectively manage interest income and expense,  to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense. Since
interest  rates are determined by market forces and economic  conditions  beyond
the  control of the  Company,  the ability to generate  net  interest  income is
dependent upon the Bank's ability to obtain an adequate  spread between the rate
earned  on  interest-earning  assets  and  the  rate  paid  on  interest-bearing
liabilities.  Thus, the key  performance  measure for net interest income is the
interest margin or net yield,  which is  taxable-equivalent  net interest income
divided by average earning assets.

         The primary component of consolidated  earnings is net interest income,
or the  difference  between  interest  income  on  interest-earning  assets  and
interest paid on  interest-bearing  liabilities.  The net interest margin is net
interest income  expressed as a percentage of average  interest-earning  assets.
Interest-earning  assets  consist of loans,  investment  securities  and Federal
funds  sold.   Interest-bearing   liabilities  consist  of  deposits  and  other
short-term  borrowings.  A portion of  interest  income is earned on  tax-exempt
investments,  such as state and  municipal  bonds.  In an  effort to state  this
tax-exempt  income and its  resultant  yield on a basis  comparable to all other
taxable  investments,  an  adjustment  is  made  to  analyze  this  income  on a
taxable-equivalent basis.

         The Company's net interest  margin  increased 79 basis points or 17.63%
to  5.27%  in  1998  as  compared  to  4.48%  in  1997.  The  yield  on  average
interest-earning  assets  increased 53 basis points or 6.07% to 9.26% in 1998 as
compared to 8.73% in 1997.  The interest  rate paid on average  interest-bearing
liabilities decreased four basis points to 4.99% in 1998 as compared to 5.03% in
1997. Net interest income on a  taxable-equivalent  basis was $2,339,000 in 1998
as  compared  to  $1,736,000  in 1997,  representing  an increase of $603,000 or
34.74%. Although net interest income was favorably impacted by an increase of 53
basis  points in yield on  interest-earning  assets and a decrease of four basis
points  in  interest  rate paid on  average  interest-bearing  liabilities,  the
changes due to rate  accounted for only $62,000 or 10.28% of the total  increase
in net interest income. An increase of $5,663,000 or 14.61% in  interest-earning
assets  accounted  for $541,000 or 89.72% of the total  increase in net interest
income.

         Average  interest-earning assets increased $5,663,000 to $44,418,000 in
1998 from  $38,755,000 in 1997, an increase of 14.61%.  Average loans  increased
$8,334,000;   average  Federal  funds  sold  increased  $814,000;   and  average
investments  decreased  $3,485,000.  The  increase  in average  interest-earning
assets was  accompanied  by an increase  of  $5,931,000,  or 15.76%,  in average
deposits to $43,578,000 in 1998 from $37,647,000 in 1997.  Approximately  20% of
the average deposits were noninterest-bearing deposits in 1998 and approximately
19% of the average deposits were noninterest-bearing deposits in 1997.




                                       22
<PAGE>



         The  allowance for loan losses is  established  through a provision for
loan losses charged to expense and represents a reserve for potential  losses in
the loan portfolio. Loans are charged against the allowance for loan losses when
management  believes that the  collectibility of the principal is unlikely.  The
allowance  is an amount  that  management  believes  will be  adequate to absorb
possible  losses  on  existing  loans  that may  become  uncollectible  based on
evaluations of the  collectibility of loans and prior loan loss experience (when
sufficient  time elapses to establish  experience).  The  evaluations  take into
consideration  such  factors  as  changes  in the  nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem and/or impaired
loans and current economic  conditions that may affect the borrowers' ability to
pay. The  adequacy of the  allowance  for loan losses is evaluated  periodically
based on a review  of all  significant  loans,  with a  particular  emphasis  on
nonaccruing,   past  due  and  other  loans  that  management  believes  require
attention.

         The  provision  for loan  losses is a charge to earnings in the current
period to  replenish  the  allowance  for loan losses and maintain it at a level
management  has  determined  to be  adequate.  In 1996,  the Company  charged to
earnings a significant  provision of $2,305,000  which was required to replenish
net loan charge-offs in 1996 of approximately 1,170,000 and to reserve for other
loans that had been classified by regulators.  During 1997, the asset quality of
the loan  portfolio  improved and the Company  recorded net loan  charge-offs of
$391,000. With the improvement in the asset quality of loans, management reduced
the  provision  for loan  losses to  $30,000 in 1997.  Based  upon  management's
evaluation of the loan  portfolio and the potential  loan risk  associated  with
specific  loans and selected  loan  categories,  management  determined  that no
provision was required to be charged to earnings in 1998. The allowance for loan
losses as a percentage of total loans outstanding  amounted to 3.03% at December
31, 1998 as compared to 3.66% at December 31,  1997.  Management  considers  the
year-end allowances adequate to cover potential losses in the loan portfolio.

         Following is a  comparison  of  noninterest  income for the years ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>

                                                                      --------------- --------------- ---------------
                                                                                                         Increase
                                                                           1998            1997         (Decrease)
                                                                      --------------- --------------- ---------------
            <S>                                                       <C>             <C>             <C>               
            Service charges on deposit accounts ..................... $      447,000  $      346,000  $      101,000
            Other service charges, commissions and fees .............         26,000          18,000           8,000
            Net realized gains on securities available for sale .....              -           1,000          (1,000)
            Origination fees on mortgage loans ......................         46,000          19,000          27,000
            Other ...................................................         70,000          38,000          32,000
                                                                      --------------- --------------- ---------------
                                                                      
                                                                      $      589,000  $      422,000  $      167,000
                                                                      =============== =============== ===============
</TABLE>
         The  increase  in service  charges on deposit  accounts  of $101,000 is
attributable to an increase of  approximately  $5,931,000 in average deposits in
1998.  Increase in other  noninterest  income was attributable  primarily to the
collection  of $28,000  in fees for  referring  two loans to  another  financial
institution.



                                      23
<PAGE>


         Following  is an  analysis of  noninterest  expense for the years ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>

                                                                    -----------------  ---------------- -----------------
                                                                                                            Increase
                                                                          1998              1997           (Decrease)
                                                                    -----------------  ---------------- -----------------
             <S>                                                    <C>                <C>              <C>   
             Salaries and employee benefits ....................... $      1,023,000   $       805,000  $        218,000
             Equipment and occupancy expense ......................          261,000           233,000            28,000
             Accounting and auditing expenses .....................           87,000            97,000          (10,000)
             Advertising expense ..................................           36,000            40,000           (4,000)
             Data processing expenses .............................          106,000            62,000            44,000
             Printing and office supplies .........................           67,000            54,000            13,000
             Other ................................................          401,000           318,000            83,000
                                                                    -----------------  ---------------- -----------------
                                                                    
                                                                    $      1,981,000   $     1,609,000  $        372,000
                                                                    =================  ================ =================
</TABLE>

         The increase in salaries and wages in 1998 is  attributable to the fact
that the salaries for two executive  officers employed in 1997 were incurred for
the entire year of 1998 whereas their  salaries were incurred for only a portion
of the year in 1997.  Also,  approximately  $71,000  was  accrued  for  employee
bonuses in 1998,  whereas no bonuses  were  accrued  in 1997.  The  increase  in
equipment and occupancy  expense is attributable to normal  increases in repairs
and  maintenance,  insurance  and  utilities.  The  increase in data  processing
expenses is  attributable  to an increase of $15,000 in regular data  processing
fees and $28,000 related to Year 2000 issues.  Approximately 50% of the increase
in other  noninterest  expense is  attributable  to increase in travel  expenses
resulting from increased  emphasis on employee  education and training  programs
conducted at off-premise training centers or educational institutions.

         Average total assets  increased  $5,238,000 or 12.04% to $48,727,000 in
1998 as  compared  to  $43,489,000  in  1997.  Average  interest-earning  assets
increased  14.61% in 1998 from 1997.  Loan demand was much stronger in 1998 than
in 1997 as evidenced by a loan to deposit ratio of 81.85% in 1998 as compared to
72.61% in 1997. Average loans increased $8,334,000 or 30.49% in 1998 as compared
to 1997.

 Liquidity and Capital Resources

         Liquidity   management   involves   the   matching  of  the  cash  flow
 requirements  of customers  who may be either  depositors  desiring to withdraw
 funds or borrowers needing assurance that sufficient funds will be available to
 meet their  credit  needs and the  ability of the  Company and the Bank to meet
 those  needs.  The  Company  and the Bank seek to meet  liquidity  requirements
 primarily through  management of short-term  investments  (principally  Federal
 funds sold) and monthly  amortizing  loans.  Another source of liquidity is the
 repayment of maturing single payment loans. The Bank is a member of the Federal
 Home Loan  Bank of  Atlanta  and as such has the  ability  to  obtain  advances
 therefrom,  although the cost of such advances  exceed lower cost  alternatives
 such as deposits from the local  community.  The Bank had outstanding  advances
 from the Federal  Home Loan Bank of Atlanta of $65,000 at December  31, 1998 at
 an average rate of 6.99%.  The Bank also has the ability to borrow and purchase
 Federal  funds from other  financial  institutions  on a short-term  basis,  if
 needed.

                                       24
<PAGE>




         The  liquidity  and capital  resources  of the Company and the Bank are
 monitored on a periodic basis by state and Federal regulatory  authorities.  As
 determined under guidelines  established by these regulatory  authorities,  the
 Bank's  liquidity  ratio at December 31, 1998 was considered  satisfactory.  At
 that  date,  the  Bank's  short-term  investments  were  adequate  to cover any
 reasonable  anticipated immediate need for funds. The Company and the Bank were
 aware of no  events or trends  likely to result in a  material  change in their
 liquidity. During 1998, the Company increased its capital by retaining earnings
 of $602,000 and by $55,000 from proceeds upon exercise of stock options.  After
 recording an increase in capital of $4,000 for unrealized  gains on securities,
 net of taxes, total capital increased $661,000 to $3,944,000 from $3,283,000 at
 December 31, 1996.

         At December 31, 1998,  there were no  outstanding  commitments  for any
 major capital  expenditures.  However, the Company estimates that approximately
 $250,000 will be required for new premises in 1999.
         In  accordance  with risk  capital  guidelines  issued  by the  Federal
 Reserve  Board,  the Bank is required  to maintain a minimum  standard of total
 capital to weighted  risk  assets of 8%.  Additionally,  all member  banks must
 maintain  "core" or "Tier 1" capital of at least 4% of total assets  ("leverage
 ratio"). Member banks operating at or near the 4% capital level are expected to
 have  well-diversified  risks,  including no undue interest rate risk exposure,
 excellent control systems, good earnings,  high asset quality, and well managed
 on- and off-balance  sheet  activities;  and, in general,  be considered strong
 banking  organizations  with a composite 1 rating under the CAMEL rating system
 of banks. For all but the most highly rated banks meeting the above conditions,
 the  minimum  leverage  ratio is to be 4% plus an  additional  100 to 200 basis
 points.

         The following  table  summarizes the  regulatory  capital levels of the
Bank at December 31, 1998.
<TABLE>
<CAPTION>

                                                      Actual                     Required                     Excess
                                             -------------------------   -------------------------   -------------------------
                                               Amount       Percent         Amount      Percent         Amount      Percent
                                             -----------  ------------   -----------  ------------   -------------------------
                                                                          (Dollars in Thousands)
                                             ---------------------------------------------------------------------------------
              <S>                            <C>            <C>          <C>              <C>        <C>               <C>   
              Leverage capital ............. $    4,369       8.02 %     $    2,177       4.00 %     $    2,192        4.02 %
              Risk-based capital:
                Core capital ...............      4,369      11.33            1,543       4.00            2,826        7.33
                Total capital ..............      4,860      12.60            3,085       8.00            1,775        4.60

</TABLE>

                                       25
<PAGE>



Year 2000 Issue Costs

         Based on recently completed  assessments,  the Bank had determined that
it will be required  to modify,  upgrade  and/or  replace  some  portions of its
internal software and hardware to ensure that its computer systems will properly
utilize  dates  beyond  December  31,  1999.  The Bank's main core  software,  a
Kirchman Dimension 3000 product,  has been externally tested and certified to be
year 2000  compliant.  As of December 31, 1998,  the Bank has commenced its year
2000 remediation program, has secured substantially all required resources,  and
expects to  substantially  complete its internal  year 2000 efforts by March 31,
1999.

         In addition,  the Bank has contacted  its critical  suppliers and other
entities  to  determine  the extent to which the Bank's  interface  systems  are
vulnerable  to those third  parties'  failure to  remediate  their own year 2000
issues.  While the Bank has not been informed of any material  risks  associated
with these  entities,  there is no guarantee  that the systems of these critical
suppliers or other  entities,  including The Federal  Reserve Bank, on which the
Bank relies, will be timely converted and will not have an adverse effect on the
Bank's systems or operations.

         The Bank has expensed  $20,000 of costs incurred to date related to the
year 2000 issue.  The total remaining cost of the year 2000 project is presently
estimated at $20,000,  which  amount will be expensed as incurred.  The costs of
the project and the date on which the Bank  believes it will  complete  the year
2000 modifications are based on management's best estimates,  which were derived
utilizing  numerous  assumptions  of  future  events.  However,  there can be no
guarantee that these  estimates will be achieved and actual results could differ
materially from those anticipated.

         A formal  contingency  plan is in the process of development  and it is
expected  that the plan will be completed by March 31, 1999.  Completion  of the
contingency plan by March 31, 1999 meets the guidelines established by the Bank.




                                       26
<PAGE>

 Average Balances and Net Income Analysis

         The  following  table sets forth the amount of the  Company's  interest
income or interest  expense for each  category  of  interest-earning  assets and
interest-bearing   liabilities   and  the  average   interest   rate  for  total
interest-earning  assets and total  interest-bearing  liabilities,  net interest
spread and net yield on average  interest-earning  assets.  Federally tax-exempt
income is presented  on a  taxable-equivalent  basis  assuming a 34% Federal tax
rate.
<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                          ----------------------------------------------------------------------------------------------------
                                        1998                              1997                              1996
                          ---------------------------------  --------------------------------  -------------------------------
                                                                (Dollars in Thousands)
                          ----------------------------------------------------------------------------------------------------
                                      Interest    Average               Interest    Average               Interest   Average
                           Average     Income/     Yield/     Average    Income/     Yield/    Average    Income/     Yield/
                           Balance     Expense      Rate      Balance    Expense      Rate     Balance    Expense      Rate
                                                    Paid                              Paid                             Paid
                          ----------- ----------  ---------  ---------- ----------  ---------  ---------  ---------  ---------
<S>                       <C>         <C>          <C>       <C>        <C>          <C>       <C>        <C>         <C>
ASSETS
   Interest-earning
   assets:
   Loans, net of
      unearned interest . $   35,670  $   3,615    10.13 %   $  27,336  $   2,698     9.87 %   $ 31,848   $  3,118     9.79 %
      Investment
      securities:
   Taxable                     4,806        291     6.05         8,291        511     6.16        5,770        325     5.63
      Federal funds sold       3,942        206     5.23         3,128        173     5.53        5,068        275     5.43
                          ----------- ----------             ---------- ----------             ---------  ---------
                                                                                               
        Total interest-
           earning assets     44,418      4,112     9.26        38,755      3,382     8.73       42,686      3,718     8.71
                          ----------- ----------             ---------- ----------             ---------  ---------
                                                                                              
   Noninterest-earning
   assets:
   Cash .................      3,009                             2,953                            4,415
   Allowance for loan
      losses ............     (1,244)                           (1,201)                          (1,023)
      Unrealized gain
      (loss)
   on available
   for sale securities ..         19                                (3)                              (7)
      Other assets ......      2,525                             2,985                            2,595
                          -----------                        ----------                        ---------
                                                                                               
        Total
        noninterest-
           earning assets      4,309                             4,734                            5,980
                          -----------                        ----------                        ---------
                                                                                               

        Total assets .... $   48,727                         $  43,489                         $ 48,666
                          ===========                        ==========                        =========

</TABLE>

                                       27
<PAGE>
<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                           ---------------------------------------------------------------------------------------------------
                                         1998                             1997                             1996
                           --------------------------------- -------------------------------- --------------------------------
                                                                 (Dollars in Thousands)
                           ---------------------------------------------------------------------------------------------------
                                       Interest    Average              Interest   Average                Interest   Average
                            Average     Income/    Yield/     Average   Income/     Yield/     Average    Income/     Yield/
                            Balance     Expense   Rate Paid   Balance   Expense   Rate Paid    Balance    Expense    Rate Paid  
                           ----------- ---------- ---------- --------- ---------- ----------- ---------- ----------- ---------
<S>                        <C>         <C>        <C>        <C>       <C>        <C>         <C>        <C>         <C>
LIABILITIES AND
   STOCKHOLDERS'
   EQUITY
   Interest-bearing
   liabilities:
   Savings and
      interest-bearing
      demand deposits ...  $    9,732  $     236     2.42%   $    8,198 $    227     2.77%    $   9,479  $      254    2.68%
   Time deposits ........      24,948      1,478     5.92        22,259    1,280     5.75        25,209       1,541    6.11
   Other borrowings .....         881         59     6.70         2,275      139     6.11         2,433         136    5.59
                           ----------- ----------            --------------------             ---------- ----------- 
      Total
      interest-bearing
        liabilities .....      35,561      1,773     4.99        32,732    1,646     5.03        37,121       1,931    5.20
                           ----------- ----------            --------------------             ---------- -----------
                                                                                          
   Noninterest-bearing liabilities
   and stockholders' equity:
      Demand deposits ...       8,898                             7,190                           7,929
      Other liabilities .         615                               458                             570
      Stockholders' equity      3,653                             3,109                           3,046
                           -----------                       -----------                      ----------
                                                                                             
      Total
      noninterest-bearing
        liabilities and
        stockholders' ...      13,166                            10,757                          11,545
        equity
                           -----------                       -----------                      ----------
                                                                                              

Total liabilities and
stockholders'
   equity ...............  $   48,727                        $   43,489                       $  48,666
                           ===========                       ===========                      ==========
                                                                                              

Interest rate spread ....                            4.27%                           3.70%                             3.51%
                                                  ==========                      ===========                        =========

Net interest income .....              $   2,339                        $  1,736                         $    1,787
                                       ==========                       =========                        ===========
                                                                                                         

Net interest margin .....                            5.27%                           4.48%                             4.19%
                                                  ==========                      ===========                        =========

</TABLE>
                                       28
<PAGE>


Rate and Volume Analysis

         The  following  table  reflects  the  changes  in net  interest  income
resulting  from changes in interest  rates and from asset and liability  volume.
Federally  tax-exempt  interest  is  presented  on  a  taxable-equivalent  basis
assuming a 34% Federal tax rate. The change in interest attributable to rate has
been determined by applying the change in rate between years to average balances
outstanding  in the later year.  The change in  interest  due to volume has been
determined  by applying  the rate from the earlier year to the change in average
balances  outstanding  between years.  Thus,  changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                           ----------------------------------------------------------------------------------
                                                        1998 vs. 1997                             1997 vs. 1996
                                           ----------------------------------------  ----------------------------------------
                                                                        (Dollars in Thousands)
                                           ----------------------------------------------------------------------------------
                                             Increase         Changes Due To          Increase          Changes Due To
                                                         --------------------------                --------------------------
                                            (Decrease)        Rate        Volume     (Decrease)        Rate         Volume
                                           ------------- ------------- ------------  ------------  ------------  ------------
<S>                                        <C>           <C>           <C>           <C>           <C>           <C>
Increase (decrease) in:
   Income from earning assets:
      Interest and fees on loans ......... $        917  $         94  $       823   $     (420)   $        22   $     (442)
   Interest on securities:
      Taxable ............................         (220)           (5)        (215)         186             44          142
   Interest on Federal funds .............           33           (12)          45         (102)             3         (105)
                                           ------------- ------------- ------------  ------------  ------------  ------------
        Total interest income ............          730            77          653         (336)            69         (405)
                                           ------------- ------------- ------------  ------------  ------------  ------------

Expense from interest-bearing liabilities:                                                                        
   Interest on savings and interest-
      bearing demand deposits ............            9           (33)          42           (27)            7          (34)
   Interest on time deposits .............          198            43          155          (261)          (81)        (180)
   Interest on other borrowings ..........          (80)            5          (85)            3            12           (9)
                                           ------------- ------------- ------------  ------------  ------------  ------------
        Total interest expense ...........          127            15          112          (285)          (62)        (223)
                                           ------------- ------------- ------------  ------------  ------------  ------------

             Net interest income ......... $        603  $         62  $       541   $       (51)   $      131   $     (182)
                                           ============= ============= ============  ============  ============  ============

</TABLE>

                                       29
<PAGE>
Asset/Liability Management

         A  principal  objective  of the  Company's  asset/liability  management
strategy is to minimize  its  exposure to changes in interest  rates by matching
the   maturity   and   repricing   horizons  of   interest-earning   assets  and
interest-bearing  liabilities.  At FNC this strategy is overseen in part through
the  direction  of the  Investment  Committee  which  establishes  policies  and
monitors results to control interest rate sensitivity. At the Bank, the strategy
is overseen by the Board of Directors  with the  direction  and  strategy  being
directed principally by the President of the Bank.

         As part  of the  Banks'  interest  rate  risk  management  policy,  the
Investment  Committee  or Board  examines  the  extent to which its  assets  and
liabilities   are   "interest   rate-sensitive"   and   monitors   its  interest
rate-sensitivity  "gap".  An asset or  liability  is  considered  to be interest
rate-sensitive  if it will  reprice or mature  within the time period  analyzed,
usually one year or less.  The interest  rate-sensitivity  gap is the difference
between the interest-earning  assets and interest-bearing  liabilities scheduled
to mature or reprice within such time period. A gap is considered  positive when
the amount of  interest  rate-sensitive  assets  exceeds  the amount of interest
rate-sensitive  liabilities.  A gap is  considered  negative  when the amount of
interest rate-sensitive  liabilities exceeds the interest rate-sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net  interest  income,  while a  positive  gap would tend to result in an
increase in net interest income. Conversely, during a period of falling interest
rates,  a  negative  gap would  tend to result in an  increase  in net  interest
income, while a positive gap would tend to adversely affect net interest income.
If the  Company's  assets  and  liabilities  were  equally  flexible  and  moved
concurrently,  the impact of any  increase or decrease in interest  rates on net
interest income would be minimal.

         A simple  interest rate "gap" analysis by itself may not be an accurate
indicator  of how net  interest  income  will be affected by changes in interest
rates.  Accordingly,  the  Investment  Committee or Board also evaluates how the
repayment  of  particular  assets  and  liabilities  is  impacted  by changes in
interest  rates.  Income  associated  with  interest-earning  assets  and  costs
associated with  interest-bearing  liabilities may not be affected  uniformly by
changes in interest rates. In addition, the magnitude and duration of changes in
interest  rates  may have a  significant  impact  on net  interest  income.  For
example,  although certain assets and liabilities may have similar maturities or
periods of repricing,  they may react in different  degrees to changes in market
interest  rates.  Interest  rates on  certain  types of assets  and  liabilities
fluctuate in advance of changes in general market interest rates, while interest
rates on other  types  may lag  behind  changes  in  general  market  rates.  In
addition,  certain assets, such as adjustable rate mortgage loans, have features
((generally referred to as "interest rate caps") which limit changes in interest
rates on a  short-term  basis and over the life of the asset.  In the event of a
change in interest  rates,  prepayment  and early  withdrawal  levels also could
deviate  significantly  from those assumed in calculating the interest rate gap.
The ability of many  borrowers  to service  their debts also may decrease in the
event of an interest rate increase.

         As of December 31, 1998,  the Company's  cumulative  one-year  interest
rate  sensitivity  gap  ratio  was  1.15%.  This  indicates  that the  Company's
interest-bearing  liabilities  will reprice  during this period at a rate faster
than the Company's  interest-earning  assets. However,  management believes that
the type and amount of the  Company's  interest  rate-sensitive  liabilities  (a
significant  portion of which are  composed  of money  market,  NOW and  savings
accounts  whose yields,  to a certain  extent,  are subject to the discretion of
management) may reduce the potential  impact that a rise in interest rates might
have on the  Company's  net  interest  income.  In  addition,  the  Company  has
borrowing  agreements with three  correspondent  banks and the Federal Home Loan
Bank to provide temporary liquidity as necessary.
                                       30
<PAGE>
         The following table sets forth the distribution of the repricing of the
Company's  earning  assets and  interest-bearing  liabilities as of December 31,
1998, the interest rate  sensitivity gap (i.e.,  interest rate sensitive  assets
less  interest  rate  sensitive  liabilities),   the  cumulative  interest  rate
sensitivity gap ratio (i.e.,  interest rate sensitive assets divided by interest
rate  sensitivity  liabilities)  and the cumulative  sensitivity gap ratio.  The
table also sets forth the time periods in which earning  assets and  liabilities
will mature or may reprice in accordance with their contractual terms.  However,
the table does not  necessarily  indicate  the impact of general  interest  rate
movements on the net interest  margin since the repricing of various  categories
of assets and  liabilities is subject to competitive  pressures and the needs of
the Banks' customers.  In addition,  various assets and liabilities indicated as
repricing  within the same period may in fact reprice at different  times within
such period and at different rates.
<TABLE>
<CAPTION>
                                                                                 At December 31, 1998
                                                          --------------------------------------------------------------------
                                                                             Maturing or Repricing Within
                                                          --------------------------------------------------------------------
                                                            Zero to        Three        One to         Over
                                                             Three       Months to       Three        Three
                                                            Months       One Year        Years        Years         Total
                                                          ------------  ------------  ------------ ------------- -------------
                                                                                (Dollars in Thousands)
                                                          --------------------------------------------------------------------
<S>                                                       <C>           <C>           <C>          <C>           <C>    
Earning assets:
   Interest-bearing deposits ............................ $        25   $         -   $         -  $          -  $         25
   Federal funds sold ...................................       5,966             -             -             -         5,966
   Investment securities ................................       1,474         1,527           501         1,252         4,754
   Loans ................................................      14,720         6,355         7,673        13,242        41,990
                                                          ------------  ------------  ------------ ------------- -------------
                                                               22,185         7,882         8,174        14,494        52,735
                                                          ------------  ------------  ------------ ------------- -------------
Interest-bearing liabilities:                                                                                       
   Interest-bearing demand deposits (1) .................           -         2,830         8,877             -        11,707
   Savings (1) ..........................................           -             -         1,973             -         1,973
   Certificates less than $100,000 ......................       5,280        10,309         1,918         1,165        18,672
   Certificates, $100,000 and over ......................       2,480         5,194         1,139           440         9,253
   Other borrowings .....................................           -            10            20            35            65
                                                          ------------  ------------  ------------ ------------- -------------
                                                                7,760        18,343        13,927         1,640        41,670
                                                          ------------  ------------  ------------ ------------- -------------

Interest rate sensitivity gap ........................... $    14,425   $  (10,461)   $   (5,753)  $     12,854  $     11,065
                                                          ============  ============  ============ ============= =============

Cumulative interest rate sensitivity gap ................ $    14,425   $     3,964   $   (1,789)  $     11,065
                                                          ============  ============  ============ =============

Interest rate sensitivity gap ratio .....................        2.86          0.43          0.59          8.84
                                                          ============  ============  ============ =============

Cumulative interest rate sensitivity gap ratio ..........        2.86          1.15          0.96          1.27
                                                          ============  ============  ============ =============
</TABLE>

(1)      The Company has found that NOW checking  accounts and savings  deposits
         are  generally  not  sensitive  to  changes  in  interest   rates  and,
         therefore,  it has placed such  liabilities in the "One to Three Years"
         category.  It has also found that the  money-market  checking  deposits
         reprice between three months to one year, on the average.
                                       31
<PAGE>
Loan Portfolio

         The amount of loans  outstanding at the indicated dates is shown in the
following table according to type of loans.
<TABLE>
<CAPTION>                                                                                                   December 31,
                                                                                         ----------------------------------
                                                                                               1998               1997
                                                                                         ---------------    ---------------
                                                                                              (Dollars in Thousands)
                                                                                         ----------------------------------
       <S>                                                                               <C>                <C>           
       Commercial and financial ........................................................ $        6,345     $        4,559
       Agricultural ....................................................................          1,214              2,369
       Real estate - construction ......................................................          1,210              1,658
       Real estate - mortgage, farmland ................................................          7,916              4,683
       Real estate - mortgage, other ...................................................         21,156             14,451
       Consumer instalment .............................................................          4,149              3,960
                                                                                         ---------------    ---------------
                                                                                                 41,990             31,680
       Allowance for loan losses .......................................................         (1,274)            (1,159)
                                                                                         ---------------    ---------------
       Loans, net ...................................................................... $       40,716     $       30,521
                                                                                         ===============    ===============
</TABLE>

Maturities and Sensitivity of Loans to Changes in Interest Rates

         The  Company's  loan  portfolio,  as of  December  31, 1998 was made up
primarily of  short-term  fixed rate loans or variable  rate loans.  The average
contractual  life on  instalment  loans  is  approximately  three  years,  while
mortgages are generally variable over one-to five-year  periods.  Total loans as
of December 31, 1998 are shown in the following  table  according to contractual
maturity classifications: (i) one year or less, (ii) after one year through five
years, and (iii) after five years.
<TABLE>
<CAPTION>
                                                       December 31,
                                                           1998
                                                       (Dollars in
                                                        Thousands)
                                                    ----------------
   <S>                                              <C>    
   Maturity:
      One year or less ............................ $        13,179
      After one year through five years ...........          22,715
      After five years ............................           6,096
                                                    ----------------
                                                    $        41,990
                                                    ================
</TABLE>

         Following is a summary of loans which  presents  separately  the amount
         of loans  outstanding  as of December 31, 1998 in each category listed
         above by maturities.
<TABLE>
<CAPTION>

                                                                     
                                                                          Due in      After One       After
                                                                            One        Through         Five
                                                                           Year       Five Years      Years         Total
                                                                        ------------ ------------- ------------- -------------
                                                                                       (Dollars in Thousands)
                                                                        ------------------------------------------------------

          <S>                                                           <C>          <C>           <C>           <C>         
          Commercial, financial and agricultural ...................... $     4,019  $      1,889  $      1,651  $      7,559
          Real estate - construction ..................................         955           155           101         1,211
          Real estate - mortgage ......................................       6,512        18,258         4,282        29,052
          Consumer instalment .........................................       1,693         2,413            62         4,168
                                                                        ------------ ------------- ------------- -------------
                                                                        
                  Total ............................................... $    13,179  $     22,715  $      6,096  $     41,990
                                                                        ============ ============= ============= =============
</TABLE>
                                       32
<PAGE>



         The following table  summarizes loans at December 31, 1998 with the due
dates after one year which (i) have  predetermined  interest rates and (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>

                                                              December 31,
                                                                  1998
                                                              (Dollars in
                                                               Thousands)
                                                           ----------------

   <S>                                                     <C>            
   Predetermined interest rates .......................... $        20,735
   Floating or adjustable interest rates .................           8,076
                                                           ----------------
                                                           $        28,811
                                                           ================
</TABLE>


Nonperforming Loans

        The following table presents, at the dates indicated, the aggregate of 
nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
                                                                                                     December 31,
                                                                                           ----------------------------------
                                                                                                 1998              1997
                                                                                           ---------------   ----------------
                                                                                                (Dollars in Thousands)
                                                                                           ----------------------------------

       <S>                                                                                 <C>               <C>            
       Loans accounted for on a nonaccrual basis ......................................... $          448    $           801

       Instalment loans and term loans contractually past due ninety
          days or more as to interest or principal payments and still accruing ...........              4                  6

       Loans, the term of which have been renegotiated to provide a ......................              -                  -
          reduction or deferral of interest or principal because of
          deterioration in the financial position of the borrower

       Loans now current about which there are serious doubts as to ......................              -                  -
          the ability of the borrower to comply with present loan
          repayment terms
</TABLE>

         In the  opinion  of  management,  any loans  classified  by  regulatory
authorities as substandard or special mention that have not been disclosed above
do not (i)  represent or result from trends or  uncertainties  which  management
reasonably expects will materially impact future operating results, liquidity or
capital resources, nor (ii) represent material credits about which management is
aware of any  information  which causes  management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms. Any loans
classified by regulatory authorities as loss have been charged off.

                                       33
<PAGE>



Summary of Loan Loss Experience

         The provision for possible loan losses is created by direct  charges to
operations.  Losses on loans are charged  against the allowance in the period in
which such loans,  in management's  opinion,  become  uncollectible.  Recoveries
during the period are credited to this  allowance.  The factors  that  influence
management's judgment in determining the amount charged to operating expense are
past loan experience,  composition of the loan portfolio, evaluation of possible
future losses,  current  economic  conditions and other  relevant  factors.  The
Company's allowance for loan losses was approximately $1,274,000 at December 31,
1998,  representing  3.03% of year-end  total loans  outstanding  compared  with
approximately  $1,159,000 at December 31, 1997, which represented 3.66% year end
total loans outstanding.

         The  allowance  for  loan  losses  is  reviewed   quarterly   based  on
management's  evaluation of current risk  characteristics of the loan portfolio,
as well as the impact of prevailing and expected economic  business  conditions.
Management  considers the allowance for loan losses  adequate to cover  possible
loan losses on each  outstanding  loan with  particular  emphasis on any problem
loans. No assurance can be given, however,  that adverse economic  circumstances
will not result in increased  losses in the Bank's loan  portfolio,  and require
greater provisions for loan losses in the future.

Allocation of the Allowance for Loan Losses

         The following  table sets forth the breakdown of the allowance for loan
losses by loan  category  for the periods  indicated.  Management  believes  the
allowance can be allocated only on an approximate  basis.  The allocation of the
allowance to each  category is not  necessarily  indicative of future losses and
does not  restrict  the use of the  allowance  to  absorb  losses  in any  other
category.
<TABLE>
<CAPTION>

                                                                                      At December 31,
                                                                -------------------------------------------------------------
                                                                            1998                           1997
                                                                ------------------------------ ------------------------------
                                                                                  Percent of                     Percent of
                                                                                   Loans in                       Loans in
                                                                                 Category to                     Category to
                                                                     Amount      Total Loans        Amount       Total Loans
                                                                ---------------- ------------- ----------------  ------------
                                                                                   (Dollars in Thousands)
                                                                -------------------------------------------------------------

<S>                                                             <C>               <C>          <C>                <C> 
Commercial, financial, industrial and agricultural ............ $           325         18 %   $           256         22 %
Real estate ...................................................             303         72                 325         66
Consumer ......................................................             455         10                 404         12
Unallocated ...................................................             191          -                 174          -
                                                                ---------------- ------------- ----------------  ------------
                                                                              
                                                                $         1,274        100 %   $         1,159        100 %
                                                                ================ ============= ================  ============
</TABLE>


                                       34
<PAGE>



Allocation of the Allowance for Loan Losses (Continued)

         The following  table  presents an analysis of the  Company's  loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>

                                                                                                     December 31,
                                                                                           ---------------------------------
                                                                                                1998               1997
                                                                                           ---------------   ---------------
                                                                                                (Dollars in Thousands)
                                                                                           ---------------------------------

       <S>                                                                                 <C>               <C>           
       Average amount of loans outstanding ............................................... $       35,670    $       27,336
                                                                                           ===============   ===============

       Balance of reserve for possible loan losses at beginning of period ................          1,159             1,520
                                                                                           ---------------   ---------------

       Charge-offs:
          Commercial, financial and agricultural .........................................            (67)             (152)
          Real estate ....................................................................             (7)             (250)
          Consumer .......................................................................            (62)             (270)
       Recoveries:
          Commercial, financial and agricultural .........................................             33                60
          Real estate ....................................................................            126               127
          Consumer .......................................................................             92                94
                                                                                           ---------------   ---------------
               Net (charge-offs) recoveries ..............................................            115              (391)
                                                                                           ---------------   ---------------

       Additions to reserve charged to operating expenses ................................              -                30
                                                                                           ---------------   ---------------

       Balance of reserve for possible loan losses ....................................... $        1,274    $        1,159
                                                                                           ===============   ===============

       Ratio of net loan (charge-offs) recoveries to average loans .......................           .32%            (1.43)%
                                                                                           ===============   ===============
</TABLE>

                                       35
<PAGE>


Investment Portfolio

         The Company  manages the mix of asset and  liability  maturities  in an
effort to control the effects of changes in the general level of interest  rates
on net interest  income.  See " -  Asset/Liability  Management."  Except for its
effect  on the  general  level  of  interest  rates,  inflation  does not have a
material  impact  on the  Company  due to the rate  variability  and  short-term
maturities of its earning assets.  In particular,  approximately 50% of the loan
portfolio is comprised of loans which mature or reprice within one year or less.
Mortgage loans, primarily with five- to fifteen-year  maturities,  are also made
on a variable  rate basis with rates  being  adjusted  every one to five  years.
Additionally,  63% of the investment  portfolio  matures or reprices  within one
year.

Types of Investments

         The  amortized  cost and fair value of  securities  are  summarized  as
follows:
<TABLE>
<CAPTION>

                                                                                 Gross            Gross
                                                             Amortized        Unrealized       Unrealized           Fair
                                                                Cost             Gains           Losses            Value
                                                           ---------------   --------------   --------------   ---------------
                                                                                 (Dollars in Thousands)
                                                           -------------------------------------------------------------------
                <S>                                        <C>               <C>              <C>              <C>    
                Securities Available for Sale
                   December 31, 1998:
                   U. S. Government and agency
                      securities ......................... $        4,259    $          21    $           -    $        4,280
                   Other investments .....................            474                -                -               474
                                                           ---------------   --------------   --------------   ---------------
                                                           
                                                           $        4,733    $          21    $           -    $        4,754
                                                           ===============   ==============   ==============   ===============
                                                           

                December 31, 1997:
                   U. S. Government and agency
                      securities ......................... $        6,010    $          17    $         (2)    $        6,025
                   Other investments .....................            474                -                -               474
                                                           ---------------   --------------   --------------   ---------------
                                                           $        6,484    $          17    $         (2)    $        6,499
                                                           ===============   ==============   ==============   ===============

</TABLE>



                                       36
<PAGE>



Maturities

         The amounts of  investment  securities  in each category as of December
31, 1998 are shown in the  following  table  according to  contractual  maturity
classifications (1) one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>

                                                                    U.S. Treasury and
                                                                  Other U. S. Government                 State and
                                                                Agencies and Corporations         Political Subdivisions
                                                                                   Yield                           Yield
                                                                 Amount             (1)           Amount          (1) (2)
                                                               ------------     ------------    ------------    ------------
                                                                                  (Dollars in Thousands)
                                                               -------------------------------------------------------------
<S>                                                            <C>               <C>            <C>              <C>    
Maturity:
   One year or less .......................................... $     2,486         5.78 %       $         -            - %
   After one year through five years .........................       2,268         5.87                   -            -
   After five years through ten years ........................           -            -                   -            -
   After ten years ...........................................           -            -                   -            -
                                                               ------------     ------------    ------------    ------------
                                                               $     4,754         5.82 %       $         -            - %
                                                               ============     ============    ============    ============
</TABLE>

(1)      Yields were computed using coupon interest,  adding discount  accretion
         or subtracting premium amortization, as appropriate, on a ratable basis
         over the life of each  security.  The weighted  average  yield for each
         maturity  range  was  computed  using  the  acquisition  price  of each
         security in that range.

(2)      Yields on securities of state and political subdivisions are stated on
         a taxable equivalent basis using a tax rate of 34%.

                                       37
<PAGE>



Deposits

         Average amount of deposits and average rate paid thereon, classified as
to  noninterest-bearing  demand  deposits,  interest-bearing  demand and savings
deposits and time deposits for the periods indicated are presented below.
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                  ------------------------------------------------------------
                                                                              1998                           1997
                                                                  -----------------------------  -----------------------------
                                                                       Amount         Rate            Amount         Rate
                                                                  ---------------  ------------  ---------------  ------------
                                                                                    (Dollars in Thousands)
                                                                  ------------------------------------------------------------

<S>                                                               <C>               <C>          <C>                 <C>  
Noninterest-bearing demand deposits ............................. $        8,898          - %    $        7,190          - %
Interest-bearing demand and savings deposits ....................          9,732       2.42               8,198       2.77
Time deposits ...................................................         24,948       5.92              22,259       5.75
                                                                  ---------------                ---------------
              Total deposits .................................... $       43,578                 $       37,647
                                                                  ===============                ===============
</TABLE>

        The Company has a large, stable base of time deposits, with little or no
dependence  on volatile  deposits of $100,000  or more.  The time  deposits  are
principally  certificates of deposit and individual retirement accounts obtained
from individual customers.

         The  amounts  of time  certificates  of  deposit  issued in  amounts of
$100,000 or more as of December 31, 1998, are shown below by category,  which is
based on time remaining  until  maturity of (i) three months or less,  (ii) over
three through twelve months and (iii) over twelve months.
<TABLE>
<CAPTION>

                                                         December 31,
                                                             1998
                                                       ---------------
                                                         (Dollars in
                                                           Thousands)
                                                       ---------------

           <S>                                         <C>           
           Three months or less ...................... $        2,480
           Over three through twelve months ..........          5,194
           Over twelve months ........................          1,579
                                                       ---------------
                         Total ....................... $        9,253
                                                       ===============
</TABLE>


                                       38
<PAGE>
Return on Assets and Stockholders' Equity

         The  following  table shows  return on assets  (net  income  divided by
average  total  assets),  return  on  equity  (net  income  divided  by  average
stockholders'  equity),  dividend  payout  ratio  (dividends  declared per share
divided  by net  income  per  share)  and  stockholders'  equity to asset  ratio
(average  stockholders'  equity divided by average total assets) for the periods
indicated.
<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                           ------------------------------------
                                                                                                1998                1997
                                                                                           ----------------    ----------------

<S>                                                                                         <C>                 <C>   
Return on assets .........................................................................         1.24 %              0.78 %

Return on equity .........................................................................        16.48               10.97

Dividends payout .........................................................................            -                   -

Equity to assets ratio ...................................................................         7.50                7.15

</TABLE>

Commitments and Lines of Credits

         In the ordinary course of business, the Bank has granted commitments to
extend credit to approved  customers.  Generally,  these  commitments  to extend
credit  have been  granted  on a  temporary  basis  for  seasonal  or  inventory
requirements and have been approved by the Bank's Board of Directors.  The Banks
have also  granted  commitments  to approved  customers  for standby  letters of
credit.  These  commitments are recorded in the financial  statements when funds
are disbursed or the financial  instruments  become  payable.  The Bank uses the
same credit  policies for these  off-balance  sheet  commitments  as they do for
financial   instruments  that  are  recorded  in  the   consolidated   financial
statements.   Commitments   generally  have  fixed  expiration  dates  or  other
termination  clauses  and may  require  payment  of a fee.  Because  many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessary represent future cash requirements.

         Following is a summary of the  commitments  outstanding at December 31,
1998 and 1997.
<TABLE>
<CAPTION>

                                                                                                     December 31,
                                                                                           ----------------------------------
                                                                                                 1998               1997
                                                                                           ---------------    ---------------
                                                                                                (Dollars in Thousands)
                                                                                           ----------------------------------

           <S>                                                                             <C>                <C>           
           Commitments to extend credit .................................................. $        4,959     $        4,746
           Standby letters of credit .....................................................            120                 12
                                                                                           ---------------    ---------------
                                                                                           $        5,079     $        4,758
                                                                                           ===============    ===============

</TABLE>
                                       39
<PAGE>
Impact of Inflation

         The  consolidated   financial   statements  and  related   consolidated
financial data presented  herein have been prepared in accordance with generally
accepted  accounting  principles and practices within the banking industry which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to  inflation.  Unlike most  industrial  companies,
virtually all the assets and liabilities of a financial institution are monetary
in  nature.  As a result,  interest  rates have a more  significant  impact on a
financial  institution's  performance  than the  effects  of  general  levels of
inflation.


ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following  consolidated financial statements of the Company and its
subsidiaries  are  included on pages F-1 through  F-32 of this Annual  Report on
Form 10-KSB:

         Consolidated Balance Sheets - December 31, 1998 and 1997

         Consolidated Statements of Income - Years Ended December 31, 1998 
         and 1997

         Consolidated Statements of Comprehensive Income - Years Ended
         December 31, 1998 and 1997

         Consolidated Statements of Stockholders' Equity - Years Ended 
         December 31, 1998 and 1997

         Consolidated Statements of Cash Flows - Years Ended December 31, 1998
         and 1997

         Notes to Consolidated Financial Statements.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         During 1998, the Company did not change its  accountants  and there was
no  disagreement  on any  matter  of  accounting  principles  or  practices  for
financial statement  disclosure that would have required the filing of a current
report on Form 8-K.

         On August 15, 1997, the Company's Board of Directors elected to dismiss
Stewart,  Fowler & Stalvey,  P.C. as the  Company's  independent  auditors.  The
report of Stewart,  Fowler & Stalvey,  P.C. accompanying the Company's financial
statements  as of and for the years ended  December  31, 1996 and 1995,  did not
contain an adverse  opinion,  or a disclaimer  of opinion,  and was not modified
with respect to uncertainty, audit scope or accounting principles.

         On August 15,  1997,  the  Company  engaged  Mauldin & Jenkins,  LLC of
Albany,  Georgia as its new certifying  accountant.  The Company did not consult
with Mauldin & Jenkins,  LLC regarding the application of accounting  principles
to a specific completed or contemplated transaction or the type of audit opinion
that might be rendered on the Company's financial statements.

         The decision of the Company to engage new  certifying  accountants  was
approved  by its Board of  Directors.  There  were,  during the two most  recent
fiscal years of the Company and for the period of January 1, 1997 through August
15, 1997, no disagreements, whether resolved or unresolved, with Stewart, Fowler
& Stalvey, P.C. with regard to any matter of accounting principles or practices,
financial statement  disclosure,  or auditing scope or procedure,  which, if not
resolved to its satisfaction would have caused Stewart,  Fowler & Stalvey,  P.C.
to make  reference to the subject  matter of the  disagreement(s)  in connection
with its report.
                                       40
<PAGE>
                                    PART III

ITEM 9.  DIRECTORS,   EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL
         PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT


DIRECTORS

         The members of the Board of Directors of the Company are elected by the
shareholders.  The  directorships of the Company are divided into three classes,
with the members of each class serving  three-year terms and the shareholders of
the Company elect one class annually.

         The following  table and  accompanying  notes sets forth the name, age,
business  experience  during  the past five  years,  the year he first  became a
director  and the year in which  his  current  term  will  expire of each of the
Directors of the Company as of December 31, 1998.
<TABLE>
<CAPTION>

                                                                                                                Director's
                                                                                                   Director        Term
                      Name                      Age                     Position                    Since         Expires
       -----------------------------------  ------------- -------------------------------------  ------------- --------------
       <S>                                  <C>           <C>                                    <C>           <C>    
       Board Nominees:
          A. Curtis Farrar, Jr.                  54       Director                                   1990          1999
          Norman E. Fletcher                     61       Director                                   1990          1999

       Directors Continuing in Office:
          Milton G. Clements                     50       Director                                   1990          2000
          Robert L. Cation                       54       Chairman of the Board of Directors         1990          2000
          Jeffery W. Johnson                     49       Director                                   1997          2000
          William C. Ellis, Jr.                  54       Director                                   1990          2001
          Ralph G. Evans                         42       Director                                   1990          2001
</TABLE>

Executive Officers

         The following table and accompanying  notes set forth the name, age and
business  experience  during  the past  five  years of  individuals  who are the
executive  officers of the Company and the Bank and all persons chosen to become
executive officers.
<TABLE>
<CAPTION>

           Name                     Age                              Position with the Company and the Bank
---------------------------    --------------      -----------------------------------------------------------------------

<S>                            <C>                 <C>                                                  
Robert L. Cation                    54             Chairman of the Board of FNC Bancorp, Inc.
                                                   Chairman of the Board of First National Bank of Coffee County

Jeffery W. Johnson                  49             President and CEO of FNC Bancorp, Inc.
                                                   President and CEO of First National Bank of Coffee County

Leonard W. Thomas                   38             Senior Vice President and CFO of First National Bank of Coffee County

Ralph G. Evans                      42             Secretary of FNC Bancorp, Inc.
</TABLE>
                                       41
<PAGE>



Business Experience

         Effective  April 2, 1997,  Jeffery W. Johnson was employed as President
and CEO of the  Company  and the Bank as well as elected  as a  director  of the
Bank. Mr. Johnson has twenty-five years experience in banking.  He most recently
served as President of First State Bank in Cordele,  Georgia, a position he held
for ten years.  Prior to his tenure with First State Bank, Mr. Johnson served as
CEO of Commercial State Bank, Donalsonville, Georgia, as a Vice President of the
Bank of Perry, Perry, Georgia and as a Banking Officer at C & S National Bank in
Athens, Georgia. Mr. Johnson is a native of Soperton, Georgia, a graduate of the
University of Georgia and the School of Banking at Louisiana  State  University.
He has  served as a director  of the Small  Business  Administration's  Advisory
Board, is a past President of the Cordele Chamber of Commerce and was a delegate
to the 1998 Congressional Conference on Small Business.

         Leonard W. Thomas is Senior Vice  President  and CFO of First  National
Bank of Coffee County. His  responsibilities  include  supervision of the Bank's
investment,  bookkeeping and accounting operations. He has over 13 years of bank
audit and management experience, is a CPA and has completed the AICPA's National
Banking School in Charlottesville, Virginia.

         Robert L.  Cation is an  Organizer  of the  Company  and the Bank.  Mr.
Cation also is the  Chairman of the Board of Directors of the Company and serves
as Chairman of the Board of Directors of the Bank.  Since 1970,  Mr.  Cation has
owned and operated Cation Food Stores, Inc., a retail grocery operation in south
Georgia,  where he  serves  as  President  and is  responsible  for the  overall
management of the  corporation.  Mr. Cation served as a director for Bank South,
Douglas (and as a director for The Exchange Bank of Douglas,  the predecessor of
Bank South, Douglas) from 1983 until June 1990.

         Milton G.  Clements is an  Organizer  of the Company and the Bank.  Mr.
Clements  also is a Director  of the Company  and the Bank.  He is Chairman  and
President of Clements,  Purvis & Stewart,  P.C., a Certified  Public  Accounting
firm  in  Douglas,  Georgia.  He  is  a  past  President  and  director  of  the
Douglas-Coffee  County  Chamber of  Commerce  as well as a past  director of the
Douglas Downtown Development  Authority.  Mr. Clements is a former member of the
Douglas Lions Club where he has held all the primary officer  positions and is a
current member of the Georgia Society and the American Institute of CPA's.

     William C. Ellis,  Jr. is an  Organizer  of the  Company and the Bank.  Mr.
Ellis also is a Director of the Company  and the Bank.  Mr.  Ellis has served as
President  of ESCO  Industries,  Inc.,  a Douglas  Georgia  based  manufacturing
corporation  with  branch  locations  in  Asheboro,  North  Carolina,  Lakeland,
Florida,  Waco, Texas and Hartselle,  Alabama. In addition,  Mr. Ellis serves as
President of Ellis & Ellis, Inc., Douglas,  Georgia and  Secretary-Treasurer  of
Diversified Polymer Industries,  Inc., Dalton,  Georgia. Mr. Ellis' professional
involvement includes membership in the Georgia Manufactured Housing Association,
the Coffee County Manufacturers Council and the Douglas-Coffee County Chamber of
Commerce.  From 1984 until June 1990,  he served as a director of Trust  Company
Bank of Coffee County.



                                       42
<PAGE>



     Ralph G. Evans is an Organizer of the Company and the Bank.  Mr. Evans also
is a Director and the  Secretary  of the Company and  Director of the Bank.  Mr.
Evans serves as President of both R. W. Griffin Feed, Seed & Fertilizer, Inc., a
farming and farm supply retail store, and Douglas Peanut and Grain Co. Mr. Evans
also  serves  as a  director  of  Chem  Nut,  Inc.,  an  Albany,  Georgia  based
publicly-held  ag-chemical  distribution  company  with  annual  sales  of  $120
million.  Mr.  Evans  previously  served as a director of the  Downtown  Douglas
Development Authority.

         A. Curtis Farrar,  Jr. is an Organizer of the Company and the Bank. Mr.
Farrar also is a Director of the Company and the Bank.  He is  presently  Senior
Partner  with the law firm of Farrar and  Hennesy.  Since 1973,  Mr.  Farrar has
served as a Juvenile Court Judge in Douglas and is presently serving as chairman
of the Georgia Board of Natural Resources.  From 1987 to 1989, Mr. Farrar served
on the Georgia Governor's Task Force on Drug Awareness and Prevention.

     Norman E.  Fletcher  is an  Organizer  of the  Company  and the  Bank.  Mr.
Fletcher  also is a Director  of the Company and the Bank.  He is  President  of
Fletcher Oil Company and Floco,  Inc. all of which are wholesale oil  companies.
He also serves as President of Quick  Change,  Inc.  convenience  store chain in
south Georgia.  Mr. Fletcher is an active member and deacon of the First Baptist
Church in Douglas,  and since  January  1990,  has served as Chairman of the Job
Training Program in the area.
     
     Unless stated otherwise,  each of the above-named  persons has been engaged
in his or her present occupation for more than the past five years.
        
     There are no family relationships among directors,  executive officers,  or
persons  nominated  or chose by the  Company to become  directors  or  executive
officers.


                                       43
<PAGE>



ITEM 10. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Executive Compensation

         The  Company  does  not  separately  compensate  any of  its  executive
officers.  The following table sets forth the annual and long-term  compensation
paid to the Company's and the Bank's Chief Executive Officer for the most recent
and previous two fiscal years and to each  executive  officer of the Company and
the Bank whose cash compensation exceeded $100,000 during 1998.
<TABLE>
<CAPTION>

                                                                           
                                                                                         Long-Term Compensation
                                                                           ----------------------------------------------------
                                              Annual Compensation                    Awards            Payouts
                         ------------------------------------------------  -------------------------- ---------
                                                              Other        Restricted    Securities
         Name                                                 Annual          Stock      Underlying     LTP       All Other
       Principal                    Salary       Bonus     Compensation     Award(S)      Options     Payouts    Compensation
       Position           Year        ($)         ($)        ($) (1)           ($)        SARS (#)      ($)          ($)
------------------------ -------- ------------ ---------- ---------------  ------------ ------------- --------- ---------------
<S>                      <C>      <C>          <C>        <C>              <C>           <C>          <C>       <C>                
Jeffery W. Johnson (2)    1998    $    96,000  $       -  $            -   $         -        18,593  $      -  $            -
   President  and CEO     1997         72,000  $       -  $            -   $         -        14,640  $      -  $          772
   of FNC Bancorp, Inc.
   and First National
   Bank of Coffee
   County
Timothy J. Palmer (3)     1996         71,186          -               -             -             -         -               -
   President and CEO
   of FNC Bancorp, Inc.
   and First National
   Bank of Coffee
   County
</TABLE>

(1)      Compensation  does not  include  any  perquisites  and  other  personal
         benefits which may be derived from  business-related  expenditures that
         in the  aggregate  do not  exceed  the  lesser of $50,000 or 10% of the
         total annual salary and bonuses reported for such person.

(2)      Jeffery W. Johnson  began  employment  April 2, 1997 and was elected 
         President and CEO of the Bank and the Company on May 15, 1997.

(3)      Timothy J. Palmer  terminated  his  employement  with the Company on
         May 19, 1996.



                                       44
<PAGE>




         The Board of  Directors,  after  consulting  with others in the banking
industry and legal counsel  negotiated an employment  agreement  with Jeffery W.
Johnson  which  commenced  on April 1, 1997 and will  continue for a term ending
April 30, 2000.  Thereafter such employment agreement will continue from year to
year unless and until  terminated by either party. The Board of Directors relied
upon  information  pertaining to comparable CEO  compensation in the industry as
well as its determination of the value of Mr. Johnson's  previous  experience in
determining a fair and  reasonable  compensation  package for Mr. Johnson as set
forth  in the  new  employment  agreement.  The  terms  and  conditions  of such
employment agreement are summarized described below.

Employment Agreement

         The employment agreement (the "Agreement")  provides Mr. Johnson with a
base salary of $96,000 annually during the initial term of the Agreement.  After
the initial  fiscal year,  the base salary may be increased at the discretion of
the Board. The Agreement also provides for incentive compensation in the form of
bonuses to be paid to Mr. Johnson should certain  performance  levels related to
profitability  be achieved.  Mr.  Johnson may receive a bonus equal to fifty per
cent (50%) of the amount by which the  Company's  net income  exceeds  return on
equity benchmarks determined as set forth in the Agreement. The return on equity
benchmark for the 1997 fiscal year is 9.5%. For subsequent  years, the benchmark
will be  determined  by the  Board  of  Directors  or a  compensation  committee
thereof.  These bonuses are capped at $35,000 for the first fiscal year, $45,000
for the second fiscal year and $50,000 for the third fiscal year. Mr. Johnson is
afforded  the right under the  Agreement  to elect to receive the amount of such
incentive  bonus in the form of  non-qualified  stock options  provided that the
total number of stock options issued under this election shall not exceed 25,000
shares. As an additional inducement to Mr. Johnson to accept employment with the
Bank,  the Company has agreed to issued stock options for 25,000 shares  vesting
8,333 shares per year the first two years of  employment  and 8,334 in the third
year.  All such stock  options  will provide for a strike price of $10 per share
and shall have a term of seven years  after the date of issuance or vesting,  as
applicable.  In addition,  Mr.  Johnson  will  receive a one-time  cash bonus of
$10,000  upon his  bringing the Bank to an overall "2" rating with the Office of
the Comptroller of the Currency.

         Upon Mr.  Palmer's  resignation,  the  remaining  directors of the Bank
purchased  from Mr. Palmer 5,000 shares of common stock and Mr.  Palmer's  stock
options for 10,926  shares in the Company.  As an  additional  inducement to Mr.
Johnson to become  employed by the Company and the bank,  each of the  directors
agreed to assign to Mr.  Johnson their portion of these stock options for 10,926
shares provided that he exercises one-half of these options within twelve months
of this employment and the remaining half within twenty-four  months. If he does
not exercise  these options within the required  times,  they will revert to the
directors.  If Mr. Johnson  acquired all of the shares of stock available to him
by stock option  under his  employment  agreement or from the Bank's  directors,
then he would own 65,926  shares of the  Company's  stock which would  represent
14.1% of the issued and outstanding  stock of the Company assuming that no other
holder of options  or  warrants  exercised  their  rights to acquire  additional
stock.


                                       45
<PAGE>




         The  Agreement  also  provides for  hospitalization  and major  medical
insurance coverage for Mr. Johnson;  term life insurance;  disability insurance;
an  automobile;  membership  in a social club  suitable for  conducting  banking
business  and  reimbursement  for expenses  incurred on behalf of the Bank.  The
Agreement  also  provides  $3,000 in  reimbursement  of the cost of  moving  his
household goods to Douglas, Georgia. In lieu of a cash payment for reimbursement
for duplicate housing while Mr. Johnson sells his home in Cordele,  the Bank has
made a house it purchased at foreclosure  available for Mr.  Johnson's use until
he  secures  permanent  housing  in  Douglas  or until a buyer for that house is
obtained.

         The Agreement  will provide that, if the Bank  terminates the Agreement
without cause during the first three years of its term, Mr. Johnson will receive
severance  pay equal to twelve  months base salary.  In the event of a change in
control of the Bank, Mr.  Johnson will receive  severance pay equal to two years
base salary unless he is offered equivalent  employment with the acquiring party
and remains employed in such capacity for at least six months.

         In addition,  the  employment  agreement  will  provide that  following
termination of his employment  with the Bank, Mr. Johnson will not engage in any
banking  activities in which he was engaged at the time of his employment within
a fifty  mile  radius of  Douglas,  Georgia  for a period of one year  following
termination.

Other Executive Compensation

         With respect to compensation paid to executive  officers other than the
CEO, the Board of Directors  has offered  competitive  salaries in comparison to
market practices when hiring.  Subsequent  raises are based upon a comparison of
current  market  conditions  and  management's   subjective   valuation  of  job
performance.  The Bank paid  bonuses to certain  executive  officers in December
1996. These bonuses were based upon an evaluation of the job performance of each
individual  executive  officer  as  well  as  a  comparison  of  current  market
conditions.  Subject to  shareholder  approval of a stock option plan, the Board
does  intend to award  stock  options  in the future to  certain  key  executive
officers  as an  incentive  to job  performance.  The Board  will also  consider
additional cash bonuses for certain executive officers again in consideration of
job performance and market conditions.

Director Compensation

         Currently, directors are reimbursed for expenses in connection with the
performance of their duties but receive no directors' fees.

                                       46
<PAGE>



         The following  table sets forth  certain  information  concerning  each
grant of options to purchase  the  Company's  common  stock made during the 1998
fiscal year to the persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>

                                     
                                                                    Individual Grants
                                      -------------------------------------------------------------------------------
                                     
                                                             % of Total
                                        Number of              Options
                                         Shares              Granted to
                                       Underlying             Employees             Exercise or
                                         Options              in Fiscal             Base Price           Expiration
                                       Granted (#)              Year                  ($/SH)                Date
                                      --------------       ----------------        --------------        ------------           
       <S>                            <C>                  <C>                     <C>                   <C>    
       Jeffery W. Johnson
          1998                               10,259              49.42%            $          10            2008
                                      ==============       ================        ==============
</TABLE>

         The  following  table  sets forth  certain  information  regarding  the
exercise of stock  options in the 1998  fiscal  year by the person  named in the
Summary  Compensation  Table and the Value of options held by such person at the
end of such fiscal year.
<TABLE>
<CAPTION>

                                       
                                Shares                          Number of Securities             Value of Unexercised
                             Acquired on      Value (1)        Underlying Unexercised            In-The-Money Options
             Name            Exercise (#)   Realized ($)      Options at Year End (#)             at Year End ($) (2)
     ---------------------  --------------- -------------- -------------------------------  --------------------------------     
                                                            Exercisable    Unexercisable      Exercisable    Unexercisable
                                                           --------------- ---------------  ---------------- ---------------
     <S>                     <C>            <C>            <C>             <C>              <C>              <C>           
     Jeffery W. Johnson              5,463  $           -          47,028           8,334   $             -  $            -
                            =============== ============== =============== ===============  ================ ===============
</TABLE>

(1)      Values are  calculated by  subtracting  the exercise or base price from
         the fair market  value of the stock as of the  exercise  date or fiscal
         year end,  as  appropriate,  which is  assumed  to be the same price at
         which  the  stock  was  initially  sold in 1991,  due to the lack of an
         established trading market.

(2)      Assumes, for all unexercised  in-the-money  options, the difference
         between fair market value and the exercise price to be $ -- for the 
         reason stated in (1) above.


                                       47
<PAGE>



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

Principal Shareholders

         The  following  table  presents  as  of  December  31,  1998,   certain
information  regarding  the  Company's  common  stock  owned by each  person who
beneficially owns more than 5% of the shares of the Company's common stock.
<TABLE>
<CAPTION>
                                                           
                                                                                  Amount and
                                                                                  Nature of
                                           Name and Address of                    Beneficial                Percent of
          Title of Class                    Beneficial Owner                      Ownership                   Class
        --------------------        ----------------------------------        -------------------        -----------------
     

       <S>                          <C>                                       <C>                        <C>  
              Common                Carl C. Atkinson                                  25,000  (5)                6.08%
                                    Rt. 2, Box 777
                                    Broxton, Georgia 31519

              Common                Robert L. Cation                                  26,750                     6.51
                                    1008 Golf Club Road
                                    Douglas, Georgia  31533

              Common                William C. Ellis, Jr.                             27,001                     6.57
                                    Post Office Box 270
                                    Douglas, Georgia  31534

              Common                Ralph G. Evans                                    31,550  (6)                7.67
                                    Post Office Box 1264
                                    Douglas, Georgia  31534

              Common                A. Curtis Farrar, Jr.                             26,751                     6.51
                                    Post Office Box 770
                                    Douglas, Georgia  31534

              Common                Norman E. Fletcher                                26,399  (7)                6.42
                                    401 Shirley Avenue
                                    Douglas, Georgia  31533
</TABLE>

(5)   Includes 12,500 shares held in the name of Malklean B. Atkinson, wife of  
      Carl C. Atkinson.

(6)   Includes  600 shares  held in the name of Cady  Suzanne  Evans,  daughter
      of Ralph G.  Evans,  600 shares  held in the name of Christy  Elizabeth 
      Evans, daughter  of  Ralph G.  Evans  and 600  shares  held in the name
      of Ralph G. Evans, Jr., son of Ralph G. Evans.

(7)   Includes  200 shares  held in the name of CEDE & Company  F/B/O  Norman E.
      Fletcher  IRA and 200 shares held in the name of CEDE & Company F/B/O 
      Marvelyne G. Fletcher (wife of Normal E. Fletcher) IRA.


                                       48
<PAGE>
Stock Ownership by Management

         The  following  table  presents  as  of  December  31,  1998,   certain
information  regarding  the  Company's  common  stock  owned  (i) by each of the
Company's  directors and (ii) by all  directors  and  executive  officers of the
Company as a group.
<TABLE>
<CAPTION>
                                                                                 Amount and
                                                                                   Nature of
                                           Name and Address of                    Beneficial                 Percent of
          Title of Class                    Beneficial Owner                       Ownership                   Class
        --------------------        ----------------------------------        --------------------        -----------------
        
       <S>                          <C>                                      <C>                          <C>
              Common                Robert L. Cation                                   26,750                     6.51%
                                    1008 Golf Club Road
                                    Douglas, Georgia  31533

              Common                Milton G. Clements                                 17,600 (8)                 4.28



              Common                William C. Ellis, Jr.                              27,001                     6.57
                                    Post Office Box 270
                                    Douglas, Georgia  31534

              Common                Ralph G. Evans                                     31,550 (9)                 7.67
                                    Post Office Box 1264
                                    Douglas, Georgia  31534

              Common                A. Curtis Farrar, Jr.                              26,751                     6.51
                                    Post Office Box 770
                                    Douglas, Georgia  31534

              Common                Norman E. Fletcher                                 26,399 (10)                6.42
                                    401 Shirley Avenue
                                    Douglas, Georgia  31533

              Common                Jeffery W. Johnson                                 11,462                     2.79

              Common                Leonard W. Thomas                                     100                        -
                                                                              ----------------            -----------------
                                                                        
        All directors and executive officers as a group (8 persons)                   167,613                    40.76%
                                                                              ================            =================
</TABLE>

(8)   Includes 1,000 shares held in the name of Laura B. Clements,  wife of 
      Milton G. Clements,  2,000 shares held in the name of Milton Bryan
      Clements, son of Milton  G.  Clements,  2,000  shares  held  in the  name
      of  Steven  Griffin Clements,  son of  Milton  G.  Clements,  2,000  
      shares  held in the name of William Donovan Clements, son of Milton G.
      Clements.

(9)   Includes  600 shares  held in the name of Cady  Suzanne  Evans,  daughter 
      of Ralph G.  Evans,  600 shares  held in the name of Christy  Elizabeth
      Evans, daughter  of  Ralph G.  Evans  and 600  shares  held in the name of
      Ralph G. Evans, Jr., son of Ralph G. Evans.

(10)  Includes  200 shares  held in the name of CEDE & Company  F/B/O  Norman E.
      Fletcher  IRA and 200 shares held in the name of CEDE & Company F/B/O 
      Marvalyne G. Fletcher (wife of Norman E. Fletcher) IRA.

                                       49
<PAGE>
         The  following  contains  information  with respect to the common stock
owned as of the record  date (i) by  directors  and  executive  officers  of the
Company and (ii) by all  directors  and  executive  officers of the Company as a
group,  who are deemed to be the beneficial  owners of additional  shares of the
common stock of the Company  through  their right to exercise  warrants or stock
options. The percent owned is calculated for each individual upon the assumption
that they have  exercised all of their  warrants or stock options while no other
holder of warrants  or options  has done so. The  percent  owned of the group is
calculated upon the assumption  that all such  individuals  have  simultaneously
exercised all of their warrants and options.
<TABLE>
<CAPTION>

                                                                                                               
                                                                                                   Number of         % Owned
                                                   Number of                                      Shares and       (Including
                       Name of                       Shares       Number of       Number of        Options/         Options/
                   Beneficial Owner                Issued (11)   Warrants (12)     Options        Warrants (13)   Warrants) (14)
       ----------------------------------------- --------------- -------------  -------------- ------------------ --------------

       <S>                                       <C>             <C>            <C>            <C>                <C>   
       Robert L. Cation                                  26,750        25,000               -             51,750      11.86%
       Milton G. Clements                                17,600        12,500               -             30,100       6.08
       William C. Ellis, Jr.                             27,001        25,000               -             52,001      11.92
       Ralph G. Evans                                    31,550        25,000               -             56,550      12.97
       A. Curtis Farrar, Jr.                             26,751        25,000               -             51,751      11.86
       Norman E. Fletcher                                26,399        25,000               -             51,399      11.78
       Jeffery W. Johnson                                11,462             -          47,029             58,491      12.77
       Leonard W. Thomas                                    100             -               -                100          -
                                                 --------------- -------------  -------------- ------------------ --------------
                                                          
          All directors and executive officers
             as a group (8 persons)                     167,613       137,500          47,029            352,142      59.11%
                                                 =============== =============  ============== ================== ==============
</TABLE>

         Under Mr. Jeffery W. Johnson's pending  employment  agreement and under
agreements  with the Bank's  directors  individually,  he acquired the rights to
acquire certain stock options and stock of the Company.  If Mr. Johnson acquired
all of the shares of stock available to him by stock option under his employment
agreement or from the Bank's  directors,  then he would own 58,491 shares of the
Company's stock which would represent 12.77% of the issued and outstanding stock
of the Company  assuming  that no other holder of options or warrants  exercised
their rights to acquire additional stock.

(11)Taken from the previous table except as noted.

(12)In  recognition  of  the  efforts  and  financial  risks  undertaken  by the
    directors and executive officers in organizing the Company and the Bank, the
    directors  and  executive  officers  named  above were  granted  warrants to
    purchase one share of common stock for each share  purchased in the original
    offering,  however,  such persons elected to acquire a total of only 137,500
    such  warrants.  Upon  exercise,  each  warrant  will  entitle the holder to
    purchase  one share of the common  stock of the  company at a price equal to
    $10 per share (the same price at which the shares were initially sold to the
    public) unless the Bank is, at that time,  required to raise capital to meet
    its  regulatory  guidelines in which case the exercise price will be greater
    of $10 per  share or the book  value per  share of the  common  stock of the
    Company as reflected in the  Company's  quarterly  financial  report for the
    quarter and  immediately  prior to the exercise of the  warrant.  Subject to
    certain  limitations,  the warrants are exercisable for a period of ten (10)
    years from the date of the Company's stock offering.

(13)Includes  shares  deemed  to be  beneficially  owned  through  the  right to
    exercise warrants or stock options exercisable within sixty (60) days of the
    record date.

(14)Based upon 411,173 shares outstanding as of the record date and as adjusted 
    for warrants or stock options  exercisable within sixty (60) days of the
    record date.
                                       50
<PAGE>



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Bank Loans to Affiliates

         The  Directors,  officers and employees of the Company and the Bank, as
well as individuals, firms and companies with which they are associated, have or
are  anticipated  to  have  banking  transactions  with  the  Bank.  Subject  to
applicable  laws,  the Bank  has a  policy  of  offering  loans to its  eligible
employees (i.e., employees other than Directors,  executive officers and holders
of more than ten percent of the Company's  outstanding  Common Stock, as well as
affiliates of such persons) at favorable  interest rates which generally will be
equal to or in excess of the Bank's prime  lending rate at the time of the loan.
Loans to  directors,  executive  officers,  controlling  shareholders  and their
affiliates  are made at the  prevailing  interest rate for  comparable  loans to
unaffiliated  borrowers. In all respects other than the rate of interest charged
on loans to  eligible  employees,  loans  by the  Bank to  directors,  officers,
employees  and  controlling  shareholders,  as  well  as to  affiliates  of such
persons,   are  extended  only  in  the  ordinary  course  of  business  and  on
substantially the same terms,  including collateral,  as those prevailing at the
time for comparable  transactions with unrelated persons and do not involve more
than the normal risk of collectability  or present other  unfavorable  features.
Bank policy also  requires that any loans by the Bank to any of its directors or
executive  officers  aggregating  in excess of $25,000  must be  approved by the
affirmative  vote of a majority of the Board of  Directors at a meeting in which
any interested  director has abstained from  participating,  either  directly or
indirectly.





                                       51
<PAGE>
                                    PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits required by Item 601 of Regulation S-B.
<TABLE>
<CAPTION>
Exhibit
   No.                                             
Description                                                                              

  <S>                             <C>                                                  
  3.1                             Articles of  Incorporation  of the Registrant,  
                                  (filed as Exhibit 3.1 to the  Registrant's 
                                  Form S-18 (File Number 33-37078), as amended.)

  3.2                             Bylaws of the Registrant  (filed as Exhibit 
                                  3.2 to the Registrant's Form S-18 (File Number
                                  33-37078), as amended.)

  10.1                            Form of subscription  Agreement  (filed as 
                                  Exhibit 10.1 to the Registrant's Annual 
                                  Report  on Form  10-KSB  (File  Number  
                                  33-37078),  filed  with the Commission for the
                                  year ended December 31, 1990 and incorporated 
                                  herein by reference.)

  10.2                            Form of  Organizer's  Warrant  (filed as
                                  Exhibit 10.2 to the  Registrant' Form S-18
                                  (File Number 33-37078), as amended.)

  10.3                            1997 Incentive  Stock Option Plan (filed as
                                  Exhibit 10.3 to the Registrant's Annual Report 
                                  on Form 10-KSB (File Number 33-37078),  filed 
                                  with the Commission  for the year  ended 
                                  December  31, 1997 and incorporated herein by
                                  reference).

  10.4                            Executive Employment  Agreement  with Jeffery
                                  W. Johnson (filed  as  Exhibit  10.4 to the 
                                  Registrant's Annual  Report  on Form  10-KSB
                                  (File  Number 33-37078),  filed with the 
                                  Commission for the year ended December 31,
                                  1997 and  incorporated herein by reference).

  21.1                            Subsidiaries  of  the  Registrant.  (filed  as
                                  Exhibit 21.1 to the Registrant's Annual Report
                                  on Form 10-KSB (File Number 33-37078),  (filed
                                  with  the   Commission   for  the  year  ended
                                  December 31, 1996 and  incorporated  herein by
                                  reference).

  24                              Power of Attorney  relating to this Annual 
                                  Report on Form 10-KSB is set forth on the 
                                  signature  page to this Annual Report.

  27                              Financial Data Schedule
</TABLE>

  (b) The  Registrant  did not file any  reports  on Form  8-K  during  the last
quarter of the period covered by this Report.

                                       52
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirement  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934 (the "Exchange  Act"),  the Registrant has duly caused this
Form  10-KSB to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                                      FNC BANCORP, INC.

Date:     March 25, 1999                 By: /s/ Jeffrey W. Johnson
          -------------------------     ---------------------------------------
                                        Jeffery W. Johnson, President,
                                        Chief Executive Officer and Director


                                POWER OF ATTORNEY

         KNOWN ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears   below   constitutes   and   appoints   Jeffery   W.   Johnson  as  his
attorney-in-fact,  acting with full power of  substitution  for him in his name,
place and stead, in any and all capacities,  to sign any amendments to this Form
10-KSB and to file the same, with exhibits  thereto,  and any other documents in
connection  therewith,  with the Securities  and Exchange  Commission and hereby
ratifies and  confirms  all that said  attorney-in-fact,  or his  substitute  or
substitutes, may do or cause to be done by virtue thereof.

         Pursuant to the  requirements of the Exchange Act, this Form 10-KSB has
been  signed  by the  following  persons  in  the  capacities  and on the  dates
indicated.

Date:     March 25, 1999                /s/ Jeffrey W. Johnson
          -------------------------     ---------------------------------------
                                        Jeffery W. Johnson, President
                                        Chief Executive Officer and Director

Date:     March 25, 1999                /s/ Robert L. Cation
          -------------------------     ---------------------------------------
                                        Robert L. Cation, Director

Date:     March 25, 1999                /s/ Milton G. Clements
          -------------------------     ---------------------------------------
                                        Milton G. Clements, Director

Date:     March 25, 1999                /s/ William C. Ellis, Jr.
          -------------------------     ---------------------------------------
                                        William C. Ellis, Jr., Director

Date:     March 25, 1999                /s/ Ralph G. Evans
          -------------------------     ---------------------------------------
                                        Ralph G. Evans, Director

Date:     March 25, 1999                /s/ A. Curtis Farrar, Jr.
          -------------------------     ---------------------------------------
                                        A. Curtis Farrar, Jr., Director

Date:     March 25, 1999                /s/ Norman E. Fletcher
          -------------------------     ---------------------------------------
                                        Norman E. Fletcher, Director


                                       53
<PAGE>

<TABLE>
<CAPTION>

                                FNC BANCORP, INC.

                                  EXHIBIT INDEX
Exhibit
   No.                                             
Description                                                                               

  <S>                             <C>         
  3.1                             Articles of  Incorporation  of the Registrant, 
                                  (filed as Exhibit 3.1 to the  Registrant's 
                                  Form S-18 (File Number 33-37078), as amended.)

  3.2                             Bylaws of the Registrant  (filed as Exhibit
                                  3.2 to the Registrant's Form S-18 (File 
                                  Number 33-37078), as amended.)

  10.1                            Form of  subscription  Agreement  (filed as
                                  Exhibit 10.1 to the Registrant's Annual 
                                  Report on Form 10-KSB (File Number 33-37078), 
                                  filed with the Commission  for the year  
                                  ended  December  31, 1990 and incorporated 
                                  herein by reference.)

  10.2                            Form of  Organizer's  Warrant  (filed as
                                  Exhibit 10.2 to the  Registrant's Form S-18 
                                  (File Number 33-37078), as amended.)

  10.3                            1997 Incentive  Stock Option Plan (filed as
                                  Exhibit 10.3 to the Registrant's Annual
                                  Report on Form 10-KSB (File Number 33-37078),
                                  (filed with the Commission  for the year 
                                  ended  December  31, 1997 and incorporated
                                  herein by reference).

  10.4                            Executive Employment  Agreement  with Jeffery
                                  W. Johnson (filed  as  Exhibit  10.4 to the 
                                  Registrant's Annual  Report  on Form  10-KSB
                                  (File  Number 33-37078),  (filed with the 
                                  Commission for the year ended December 31,
                                  1997 and  incorporated  herein by reference).

  21.1                            Subsidiaries  of  the  Registrant.  (filed  as
                                  Exhibit 21.1 to the Registrant's Annual Report
                                  on Form 10-KSB (File Number 33-37078),  (filed
                                  with  the   Commission   for  the  year  ended
                                  December 31, 1996 and  incorporated  herein by
                                  reference.)

  24                              Power of Attorney  relating to this Annual 
                                  Report on Form 10-KSB is set forth on the
                                  signature  pages to this Annual Report.

  27                              Financial Data Schedule
</TABLE>

  (b) The  Registrant  did not file any  reports  on Form  8-K  during  the last
quarter of the period covered by this Report.


                                       54
<PAGE>
<TABLE>
<CAPTION>



                               FNC BANCCORP, INC.

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Consolidated financial statements:                                                                  Page
                                                                                                    ----
    <S>                                                                                             <C>
    Independent Auditor's Report ................................................................... F-1
    Consolidated  Balance  Sheets -  December  31, 1998 and 1997 ................................... F-2
    Consolidated Statements of Income - Years ended  December 31, 1998 and 1997 .................... F-3
    Consolidated Statements of Comprehensive Income - Years ended December 31, 1998 and 1997 ....... F-4
    Consolidated  Statements of Stockholders'  Equity - Years ended December 31, 1998 and 1997 ..... F-5
    Consolidated  Statements of Cash Flows - Years ended December 31, 1998 and 1997 ................ F-6
    Notes to Consolidated Financial Statements ..................................................... F-8
</TABLE>

All schedules are omitted as the required  information  is  inapplicable  or the
information is presented in the financial statements or related notes.


                                       55
<PAGE>





                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
FNC Bancorp, Inc. and Subsidiary
Douglas, Georgia


                  We have audited the accompanying  consolidated  balance sheets
of FNC  Bancorp,  Inc. and  subsidiary  as of December 31, 1998 and 1997 and the
related consolidated statements of income,  comprehensive income,  stockholders'
equity and cash flows for the years then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

                  We conducted our audits in accordance with generally  accepted
auditing standards.  Those standards require that we plan and perform the audits
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.


                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of FNC
Bancorp,  Inc. and  subsidiary as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.






Albany, Georgia                                   /s/ Mauldin & Jenkins, LLC
January 28. 1999



                                      F-1
<PAGE>
                                FNC BANCORP, INC.
                                 AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>

                                    Assets                                               1998                     1997
                                    ------                                                   
                                                                               ---------------------    ---------------------
<S>                                                                            <C>                       <C>                
Cash and due from banks ...................................................... $          5,617,359      $         4,924,600
Federal funds sold ...........................................................            5,966,000                   34,000
Securities available for sale, at fair value .................................            4,753,962                6,499,422

Loans ........................................................................           41,989,950               31,679,747
Less allowance for loan losses ...............................................            1,274,285                1,159,173
                                                                               ---------------------    ---------------------
          Loans, net .........................................................           40,715,665               30,520,574
                                                                               ---------------------    ---------------------

Premises and equipment, net ..................................................            1,613,025                1,655,030
Other assets .................................................................              914,391                1,169,108
                                                                               ---------------------    ---------------------
                                                                                 $       59,580,402      $        44,802,734
                                                                               =====================    =====================

                     Liabilities and Stockholders' Equity

Deposits
    Noninterest-bearing demand ............................................... $         12,695,085      $         7,708,349
    Interest-bearing demand ..................................................           11,707,125                6,819,767
    Savings ..................................................................            1,973,434                1,832,359
    Time, $100,000 and over ..................................................            9,252,893                6,116,839
    Other time ...............................................................           18,671,816               16,570,685
                                                                               ---------------------    ---------------------
              Total deposits .................................................           54,300,353               39,047,999
    Notes payable, directors .................................................              500,000                  500,000
    Federal funds purchased ..................................................                    -                  430,000
    Other borrowings .........................................................               65,000                1,075,000
    Other liabilities ........................................................              771,509                  466,537
                                                                               ---------------------    ---------------------
          Total liabilities ..................................................           55,636,862               41,519,536
                                                                               ---------------------    ---------------------
Stockholders' equity
    Preferred stock, par value $1; 10,000,000 shares
        authorized, no shares issued
    Common stock, par value $1; 10,000,000 shares
        authorized; issued 1998 411,173 shares;
        1997 405,710 shares ..................................................              411,173                  405,710
    Capital  surplus .........................................................            3,659,708                3,610,541
    Accumulated deficit ......................................................            (141,341)                (743,019)
    Accumulated other comprehensive income ...................................               14,000                    9,966
                                                                               ---------------------    ---------------------

          Total stockholders' equity .........................................            3,943,540                3,283,198
                                                                               ---------------------    ---------------------
                                                                                 $       59,580,402      $        44,802,734
                                                                               =====================    =====================
</TABLE>
See Notes to Consolidated Financial Statements.

                                      F-2
<PAGE>
                                FNC BANCORP, INC.
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATION
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                          1998                      1997
                                                                                   -------------------   ----------------------
<S>                                                                                <C>                   <C>    
Interest income
    Interest and fees on loans ................................................... $        3,614,790      $         2,697,495
    Interest on taxable securities ...............................................            290,683                  511,038
    Interest on Federal funds sold ...............................................            206,364                  173,093
                                                                                   -------------------   ----------------------
                                                                                            4,111,837                3,381,626
                                                                                   -------------------   ----------------------

Interest expense
    Interest on deposits .........................................................          1,713,903                1,506,970
    Interest on other borrowings .................................................             59,358                  139,260
                                                                                   -------------------   ----------------------
                                                                                            1,773,261                1,646,230
                                                                                   -------------------   ----------------------

          Net interest income ....................................................          2,338,576                1,735,396
Provision for loan losses ........................................................                  -                   30,450
                                                                                   -------------------   ----------------------
          Net interest income after provision for loan losses ....................          2,338,576                1,704,946
                                                                                   -------------------   ----------------------

Other income
    Service charges on deposit accounts ..........................................            446,728                  346,136
    Other service charges, commissions and fees ..................................             26,545                   18,031
    Net realized gains on securities available for sale ..........................                  -                      900
    Origination fees on mortgage loans ...........................................             45,851                   19,291
    Other ........................................................................             70,204                   38,034
                                                                                   -------------------   ----------------------
                                                                                              589,328                  422,392
                                                                                   -------------------   ----------------------

Other expenses
    Salaries and employee benefits ...............................................          1,023,104                  805,041
    Equipment expense ............................................................            161,111                  140,235
    Occupancy expense ............................................................            100,195                   92,868
    Accounting expenses ..........................................................             87,012                   96,885
    Advertising expense ..........................................................             36,039                   39,613
    Data processing expenses .....................................................            106,459                   62,403
    Printing and office supplies .................................................             67,138                   54,077
    Other operating expenses .....................................................            400,557                  318,226
                                                                                   -------------------   ----------------------
                                                                                            1,981,615                1,609,348
                                                                                   -------------------   ----------------------

          Income before income taxes .............................................            946,289                  517,990

Applicable income taxes ..........................................................            344,611                  176,680
                                                                                   -------------------   ----------------------
          Net income ............................................................. $          601,678      $           341,310
                                                                                   -------------------   ----------------------
Income per common share - basic and diluted ...................................... $             1.47      $              0.84
                                                                                   ===================   ======================
</TABLE>
See Notes to Consolidated Financial Statements.

                                      F-3
<PAGE>



                                FNC BANCORP, INC.
                                 AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                          1998                     1997
                                                                                   -------------------   --------------------

<S>                                                                                <C>                     <C>              
Net income ......................................................................  $          601,678      $         341,310

Other comprehensive income:
    Net unrealized holding gains arising during
        period, net of tax of $1,866 and $4,590 .................................               4,034                  8,910
    Reclassification adjustment for gains included in
        net income, net of tax of $- - and $306 .................................                   -                  (594)
                                                                                   -------------------   --------------------
          Total other comprehensive income ......................................               4,034                  8,316
                                                                                   -------------------   --------------------

Comprehensive income ............................................................  $          605,712      $         349,626
                                                                                   ===================   ====================
</TABLE>



See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>

                               
                               FNC BANCORP, INC.
                                 AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>



                                                         
                                                                                     Accumulated
                                         Common Stock                                   Other          Total
                                     --------------------     Capital   Accumulated Comprehensive   Stockholders'
                                      Shares    Par Value     Surplus     Deficit       Income          Equity
                                     --------  ----------  -----------  -----------  -----------  ---------------

<S>                                  <C>       <C>          <C>         <C>          <C>            <C>                
Balance, December 31, 1996 .......... 405,710  $  405,710   $3,610,541  $(1,084,329) $     1,650    $   2,933,572
    Net income ......................       -           -            -      341,310                 -     341,310
    Other comprehensive income ......       -           -            -            -        8,316            8,316
                                     --------  ----------   ----------  -----------  -----------  ---------------
Balance, December 31, 1997 .......... 405,710     405,710    3,610,541     (743,019)       9,966        3,283,198
    Exercise of options by
        officer .....................   5,463       5,463       49,167            -            -           54,630
    Net income ......................       -           -            -      601,678            -          601,678
    Other comprehensive income ......       -           -            -            -        4,034            4,034
                                     -------- -----------   ----------  -----------  -----------  ---------------
Balance, December 31, 1998 .......... 411,173 $   411,173   $3,659,708  $  (141,341) $    14,000  $     3,943,540
                                     ======== ===========   ==========  ===========  ===========  ===============

</TABLE>


See Notes to Consolidated Financial Statements.

                                      F-5

<PAGE>

                                FNC BANCORP, INC.
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                        1998                        1997
                                                                               -----------------------   ----------------------
<S>                                                                            <C>                       <C>    
OPERATING ACTIVITIES
    Net income ............................................................... $              601,678      $           341,310
                                                                               -----------------------   ----------------------
    Adjustments  to  reconcile  net  income to net cash 
     provided  by  operating activities:
        Depreciation .........................................................                133,926                  134,383
        Provision for loan losses ............................................                      -                   30,450
        Provision for deferred income taxes ..................................                173,529                  176,680
        Net realized gains on securities available for sale ..................                      -                     (900)
        (Increase) decrease in interest receivable ...........................                (28,792)                 174,393
        Increase (decrease) in interest payable ..............................                189,052                 (154,199)
        Decrease in prepaid taxes ............................................                      -                   66,360
        Other prepaids, deferrals and accruals, net ..........................                224,034                  (28,785)
                                                                               -----------------------   ----------------------
              Total adjustments ..............................................                691,749                  398,382
                                                                               -----------------------   ----------------------

              Net cash provided by operating activities ......................              1,293,427                  739,692
                                                                               -----------------------   ----------------------

INVESTING ACTIVITIES
    Proceeds from sales of securities available for sale .....................                      -                1,123,667
    Purchases of securities available for sale ...............................             (1,750,000)              (4,538,046)
    Proceeds from maturities of securities available for sale ................              3,501,360                4,776,365
    (Increase) decrease in Federal funds sold ................................             (5,932,000)               7,215,000
    Increase in loans, net ...................................................            (10,195,091)              (4,725,766)
    Purchase of premises and equipment .......................................                (91,921)                (107,332)
                                                                               -----------------------   ----------------------

              Net cash provided by (used in) investing activities ............            (14,467,652)               3,743,888
                                                                               -----------------------   ----------------------

FINANCING ACTIVITIES
    Increase (decrease) in deposits ..........................................             15,252,354               (3,496,602)
    Increase (decrease) in Federal funds purchased ...........................               (430,000)                 430,000
    Decrease in other borrowings .............................................             (1,010,000)              (1,410,000)
    Proceeds from issuance of common stock ...................................                 54,630                        -
                                                                               -----------------------   ----------------------

              Net cash provided by (used) in financing activities ............             13,866,984               (4,476,602)
                                                                               -----------------------   ----------------------
                                                     
</TABLE>
                                      F-6
<PAGE>

                                FNC BANCORP, INC.
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                          1998                      1997
                                                                                   -------------------   ----------------------

<S>                                                                                <C>                     <C>                
Net increase in cash and due from banks .........................................  $          692,759      $             6,978

Cash and due from banks at beginning of year ....................................           4,924,600                4,917,622
                                                                                   -------------------   ----------------------

Cash and due from banks at end of year ..........................................  $        5,617,359      $         4,924,600
                                                                                   -------------------   ----------------------

SUPPLEMENTAL DISCLOSURES
    Cash paid (received) during the year for:
        Interest ................................................................  $        1,584,209      $         1,800,429

        Income taxes ............................................................  $          171,082      $          (66,360)

NONCASH TRANSACTION
    Net change in unrealized gains on securities
        available for sale ......................................................  $            5,900      $            12,600

</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-7


<PAGE>




                                FNC BANCORP, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Nature of Business

                     FNC Bancorp,  Inc. (the Company) is a bank holding  company
                     whose business is conducted by its wholly-owned subsidiary,
                     First National Bank of Coffee County,  (the Bank). The Bank
                     is a  commercial  bank located in Douglas,  Coffee  County,
                     Georgia. The Bank provides a full range of banking services
                     in its  primary  market  area  of  Coffee  County  and  the
                     surrounding counties.  The Company and the Bank are subject
                     to the  regulations  of certain  Federal and state agencies
                     and  are   periodically   examined   by  those   regulatory
                     authorities.

                  Basis of Presentation

                     The  accounting  and  reporting  policies  of  the  Company
                     conform to generally  accepted  accounting  principles  and
                     general practices within the financial  services  industry.
                     In  preparing  the  financial  statements,   management  is
                     required to make estimates and assumptions  that affect the
                     reported  amounts of assets and  liabilities as of the date
                     of the balance  sheet and  revenues  and  expenses  for the
                     period. Actual results could differ from those estimates.

                     The consolidated  financial statements include the accounts
                     of the Company and its subsidiary. Significant intercompany
                     transactions and accounts are eliminated in consolidation.

                     The principles which significantly affect the determination
                     of financial position, results of operations and cash flows
                     are summarized below.

                  Cash and Cash Equivalents

                     For  purposes of  reporting  cash flows,  cash and due from
                     banks  includes  cash on hand and  amounts  due from  banks
                     (including  cash items in process of clearing).  Cash flows
                     from   loans    originated    by   the   Bank,    deposits,
                     interest-bearing  deposits and Federal funds  purchased and
                     sold are reported net.

                     The  Company  maintains  amounts due from banks  which,  at
                     times, may exceed Federally insured limits. The Company has
                     not experienced any losses in such accounts.


                                      F-8

<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Investment Securities

                     Securities are classified  based on management's  intention
                     on the date of purchase.  All of the  Company's  securities
                     are  classified  as available  for sale and carried at fair
                     value  with net  unrealized  gains and losses  included  in
                     stockholders' equity, net of tax.

                     Interest   and   dividends   on    securities,    including
                     amortization  of premiums and accretion of  discounts,  are
                     included in interest income. Realized gains and losses from
                     the sales of securities are  determined  using the specific
                     identification method.

                     A decline in the fair value below cost of any security that
                     is deemed  other than  temporary  is  charged  to  earnings
                     resulting in the  establishment of a new cost basis for the
                     security.

                  Loans

                     Loans are carried at their  principal  amounts  outstanding
                     less  unearned  income and the  allowance  for loan losses.
                     Interest income on loans is credited to income based on the
                     principal amount outstanding.

                     Loan origination fees and certain direct costs of loans are
                     recognized  at the time the loan is  recorded.  Because net
                     origination  loan  fees and  costs  are not  material,  the
                     results of operations are not materially different than the
                     results which would be obtained by accounting for loan fees
                     and costs in accordance with generally accepted  accounting
                     principles.

                     The allowance for loan losses is maintained at a level that
                     management  believes  to be  adequate  to absorb  potential
                     losses in the loan portfolio. Management's determination of
                     the adequacy of the  allowance is based on an evaluation of
                     the portfolio, past loan loss experience,  current economic
                     conditions,   volume,  growth,   composition  of  the  loan
                     portfolio,  and other risks inherent in the  portfolio.  In
                     addition, regulatory agencies, as an integral part of their
                     examination  process,  periodically  review  the  Company's
                     allowance  for loan losses,  and may require the Company to
                     record  additions to the allowance  based on their judgment
                     about  information  available  to them at the time of their
                     examinations.

                                      F-9
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Loans (Continued)

                     The accrual of interest on impaired  loans is  discontinued
                     when, in management's  opinion,  the borrower may be unable
                     to meet  payments  as they  become  due.  When  accrual  of
                     interest is  discontinued,  all unpaid accrued  interest is
                     reversed.  Interest income is subsequently  recognized only
                     to the extent cash payments are received.

                     A loan is impaired  when it is probable the Company will be
                     unable to collect all principal  and interest  payments due
                     in  accordance  with  the  terms  of  the  loan  agreement.
                     Individually  identified  impaired loans are measured based
                     on the present  value of payments  expected to be received,
                     using  the  contractual  loan  rate as the  discount  rate.
                     Alternatively,  measurement  may  be  based  on  observable
                     market  prices or, for loans that are solely  dependent  on
                     the collateral for repayment,  measurement  may be based on
                     the  fair  value  of  the   collateral.   If  the  recorded
                     investment in the impaired loan exceeds the measure of fair
                     value, a valuation  allowance is established as a component
                     of the allowance for loan losses.  Changes to the valuation
                     allowance  are recorded as a component of the provision for
                     loan losses.

                  Premises and Equipment

                     Premises and equipment are stated at cost less  accumulated
                     depreciation.  Depreciation is computed  principally by the
                     straight-line method over the estimated useful lives of the
                     assets.

                  Other Real Estate Owned

                     Other  real  estate  owned  (OREO)  represents   properties
                     acquired through foreclosure or other proceedings.  OREO is
                     held for sale and is recorded at the lower of the  recorded
                     amount  of the loan or fair  value of the  properties  less
                     estimated  costs of disposal.  Any write-down to fair value
                     at the time of transfer to OREO is charged to the allowance
                     for loan losses.  Property is evaluated regularly to ensure
                     the recorded  amount is supported by its current fair value
                     and valuation  allowances to reduce the carrying  amount to
                     fair value less estimated  costs to dispose are recorded as
                     necessary. Subsequent decreases in fair value and increases
                     in fair value, up to the value  established at foreclosure,
                     are   recognized  as  charges  or  credits  to  noninterest
                     expense.  OREO is reported net of  allowance  for losses in
                     the Bank's financial statements.



                                      F-10
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Income Taxes

                     Income tax expense  consists of current and deferred taxes.
                     Current income tax provisions  approximate taxes to be paid
                     or refunded for the  applicable  year.  Deferred tax assets
                     and liabilities are recognized on the temporary differences
                     between the bases of assets and  liabilities as measured by
                     tax  laws and  their  bases as  reported  in the  financial
                     statements.   Deferred  tax  expense  or  benefit  is  then
                     recognized  for  the  change  in  deferred  tax  assets  or
                     liabilities between periods.

                     Recognition  of deferred tax balance sheet amounts is based
                     on management's belief that it is more likely than not that
                     the  tax  benefit   associated   with   certain   temporary
                     differences,  tax  operating  loss  carryforwards,  and tax
                     credits will be realized. A valuation allowance is recorded
                     for those  deferred  tax items for which it is more  likely
                     than not that realization will not occur.

                     The  Company  and the Bank file a  consolidated  income tax
                     return.  Each entity provides for income taxes based on its
                     contribution to income taxes (benefits) of the consolidated
                     group.

                  Earnings Per Common Share

                     Basic earnings per share are calculated on the basis of the
                     weighted  average  number  of  common  shares  outstanding.
                     Diluted  earnings  per share are  computed by dividing  net
                     income by the sum of the weighted  average number of common
                     shares  outstanding and potential common shares that have a
                     dilutive effect on earnings.  Because the fair market value
                     of the Company's stock did not exceed the exercise price of
                     the stock  options at December  31, 1998 or at December 31,
                     1997, stock options had no dilutive effect on earnings.

                  Recent Accounting Pronouncements

                     In  1998,  the  Company  adopted   Statement  of  Financial
                     Accounting  Standards No. 130 ("SFAS No. 130"),  "Reporting
                     Comprehensive Income". This statement establishes standards
                     for reporting and display of  comprehensive  income and its
                     components  in the  financial  statements.  This  statement
                     requires  that all items that are required to be recognized
                     under  accounting  standards as components of comprehensive
                     income  be  reported  in  a  financial  statement  that  is
                     displayed in equal prominence with the other

                                      F-11
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Recent Accounting Pronouncements (Continued)

                     financial  statements.  The  Company  has elected to report
                     comprehensive  income  in a  separate  financial  statement
                     titled "Consolidated  Statements of Comprehensive  Income".
                     SFAS No. 130 describes comprehensive income as the total of
                     all  components  of  comprehensive  income,  including  net
                     income. This statement uses other  comprehensive  income to
                     refer to  revenues,  expenses,  gains and losses that under
                     generally  accepted  accounting  principles are included in
                     comprehensive   income  but   excluded   from  net  income.
                     Currently,   the  Company's  other   comprehensive   income
                     consists of items  previously  reported  directly in equity
                     under SFAS No. 115,  "Accounting for Certain Investments in
                     Debt and Equity  Securities".  As required by SFAS No. 130,
                     the  financial  statements  for the  prior  year  have been
                     reclassified  to reflect  application  of the provisions of
                     this  statement.  The  adoption of this  statement  did not
                     affect  the  Company's  financial   position,   results  of
                     operations or cash flows.

                     In June 1998,  the  Financial  Accounting  Standards  Board
                     issued Statement of Financial  Accounting Standards No. 133
                     ("SFAS No. 133"),  "Accounting  for Derivative  Instruments
                     and Hedging  Activities".  This statement is required to be
                     adopted for fiscal  years  beginning  after June 15,  1999.
                     However,  the statement  permits  early  adoption as of the
                     beginning of any fiscal  quarter  after its  issuance.  The
                     Company expects to adopt this statement  effective  January
                     1, 2000.  SFAS 133 requires  the Company to  recognize  all
                     derivatives  as either assets or liabilities in the balance
                     sheet  at  fair  value.   For  derivatives   that  are  not
                     designated  as hedges,  the gain or loss must be recognized
                     in earnings in the period of change.  For derivatives  that
                     are designated as hedges,  changes in the fair value of the
                     hedged assets,  liabilities,  or firm  commitments  must be
                     recognized in earnings or recognized in other comprehensive
                     income  until the hedged item is  recognized  in  earnings,
                     depending  on the  nature  of the  hedge.  The  ineffective
                     portion  of a  derivative's  change in fair  value  must be
                     recognized in earnings immediately.

                     Management has not yet determined  what effect the adoption
                     of  SFAS  133  will  have  on  the  Company's  earnings  or
                     financial position.

                  Reclassifications

                     Certain  reclassifications  have  been  made  in  the  1997
                     consolidated   financial   statements  to  conform  to  the
                     presentation used in 1998.

                                      F-12
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.  INVESTMENT SECURITIES

                  The amortized cost and approximate  fair values of investments
                  in securities at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>

                                                                                   Gross           Gross
                                                                Amortized       Unrealized      Unrealized          Fair
                                                                  Cost             Gains          Losses            Value
                                                            ----------------  --------------  --------------  ----------------
                          <S>                               <C>               <C>             <C>             <C>
                          December 31, 1998:
                          U. S. Government and agency
                             securities ................... $     4,259,362   $      21,000   $           -   $     4,280,362
                          Other investments ...............         473,600               -               -           473,600
                                                            ----------------  --------------  --------------  ----------------   
                                                            $     4,732,962   $      21,000   $           -   $     4,753,962
                                                            ================  ==============  ==============  ================

                                                                                   Gross           Gross
                                                               Amortized        Unrealized      Unrealized          Fair
                                                                  Cost             Gains          Losses            Value
                                                            ---------------   --------------  --------------  ----------------
                          December 31, 1997:
                          U. S. Government and agency
                             securities ................... $    6,010,722    $      16,702   $     (1,602)   $     6,025,822
                          Other investments ...............        473,600                -               -           473,600
                                                            ---------------   --------------  --------------  ----------------
                                                            $    6,484,322    $      16,702   $     (1,602)   $     6,499,422
                                                            ===============   ==============  ==============  ================
</TABLE>

                  The amortized cost and fair value of securities as of December
                  31, 1998 by contractual maturity are shown below:
<TABLE>
<CAPTION>
                                                                                            Securities Available for Sale
                                                                                          -----------------------------------
                                                                                              Amortized            Fair
                                                                                                Cost               Value
                                                                                          ----------------   ----------------

                       <S>                                                                <C>                <C>            
                       Due in one year or less .......................................... $     2,001,708    $     2,011,719
                       Due from one year to five years ..................................       2,257,654          2,268,643
                       Other investments ................................................         473,600            473,600
                                                                                          ----------------   ----------------
                                                                                          $     4,732,962    $     4,753,962
                                                                                          ================   ================
</TABLE>
                  Securities  with a carrying value of $2,824,141 and $3,524,698
                  at December 31, 1998 and 1997,  respectively,  were pledged to
                  secure public deposits and for other purposes.

                                      F-13
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.  INVESTMENT SECURITIES (Continued)

                  Gains and  losses on sales of  securities  available  for sale
                  consist of the following:
<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                          ----------------------------------
                                                                                                1998               1997
                                                                                          ---------------    ---------------

                      <S>                                                                 <C>                <C>           
                      Gross realized gains on sales of securities ....................... $            -     $        2,194
                      Gross realized losses on sales of securities ......................              -             (1,294)
                                                                                          ---------------    ---------------
                      Net realized gains on sales of securities available for sale ...... $            -     $          900
                                                                                          ===============    ===============
</TABLE>

NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES

                  The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                  ------------------------------------------
                                                                                          1998                    1997
                                                                                  -------------------    -------------------

                      <S>                                                         <C>                    <C>               
                      Commercial and financial .................................. $        6,344,841     $        4,558,964
                      Agricultural ..............................................          1,213,970              2,368,981
                      Real estate - construction ................................          1,209,970              1,657,987
                      Real estate - mortgage, farmland ..........................          7,915,802              4,682,963
                      Real estate - mortgage, other .............................         21,156,471             14,450,885
                      Consumer instalment .......................................          4,148,896              3,959,967
                                                                                  -------------------    -------------------
                                                                                          41,989,950             31,679,747
                      Allowance for loan losses .................................         (1,274,285)            (1,159,173)
                                                                                  -------------------    -------------------
                      Loans, net ................................................ $       40,715,665     $       30,520,574
                                                                                  ===================    ===================
</TABLE>
                  The total  recorded  investment in impaired loans was $332,587
                  and  $772,654  at December  31,  1998 and 1997,  respectively.
                  Included in these loans were  $332,587 and $654,438 that had a
                  related  allowance  for loan loss of $68,762  and  $139,461 at
                  December 31, 1998 and 1997, respectively. The average recorded
                  investment  in impaired  loans for 1998 and 1997 was $ 569,101
                  and  $1,365,746,  respectively.  Interest  income on  impaired
                  loans of $- - and  $7,987  was  recognized  for cash  payments
                  received  for the  years  ended  December  31,  1998 and 1997,
                  respectively.

                                      F-14
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

                  Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>                                                                                               December 31,
                                                                                  ------------------------------------------
                                                                                          1998                   1997
                                                                                  -------------------    -------------------

                      <S>                                                         <C>                    <C>               
                      Balance, beginning of year ................................ $        1,159,173     $        1,520,385
                         Provision charged to operations ........................                  -                 30,450
                         Loans charged off ......................................           (135,693)              (672,363)
                         Recoveries .............................................            250,805                280,701
                                                                                  -------------------    -------------------
                      Balance, end of year ...................................... $        1,274,285     $        1,159,173
                                                                                  ===================    ===================
</TABLE>

                  The Bank has  granted  loans to certain  directors,  executive
                  officers and related  entities.  The  interest  rates on these
                  loans were  substantially  the same as rates prevailing at the
                  time of the  transaction and repayment terms are customary for
                  the type of loan  involved.  The aggregate  amount of loans to
                  such  related  parties  at  December  31,  1998  and  1997 was
                  $175,228 and $176,987, respectively. During 1998 and 1997, new
                  loans  to  such  related  parties  amounted  to  $252,736  and
                  $380,880 and  repayments  amounted to $254,495  and  $122,100,
                  respectively.


NOTE 4.  PREMISES AND EQUIPMENT, NET

                  Major  classifications  of  these  assets  are  summarized  as
                  follows:
<TABLE>
<CAPTION>                                                                                                    December 31,
                                                                                       ---------------------------------------
                                                                                              1998                  1997
                                                                                       -----------------     -----------------

                      <S>                                                              <C>                   <C>             
                      Land ........................................................... $        372,676      $        372,676
                      Buildings and improvements .....................................        1,064,078             1,064,078
                      Equipment ......................................................          882,757               811,389
                                                                                       -----------------     -----------------
                                                                                              2,319,511             2,248,143
                      Accumulated depreciation .......................................         (706,486)             (593,113)
                                                                                       -----------------     -----------------
                                                                                       $      1,613,025      $      1,655,030
                                                                                       =================     =================
</TABLE>

                                      F-15
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5.           DEPOSITS

                  At  December  31,  1998,  the  scheduled  maturities  of  time
                  deposits are as follows:

<TABLE>
<CAPTION>

                      <S>                                                     <C>            
                      Due in one year or less ............................... $    23,262,758
                      Due from one year to three years ......................       3,056,968
                      Due from three years to five years ....................         902,991
                      Due after five years ..................................         701,992
                                                                              ----------------
                                                                              $    27,924,709
                                                                              ================
</TABLE>

NOTE 6.  OTHER BORROWINGS

                  Other borrowings consist of the following:

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                       ---------------------------------------
                                                                                              1997                  1997
                                                                                       -----------------     -----------------

                     <S>                                                               <C>                   <C>             
                      Advances from the Federal Home Bank with interest                $         65,000      $      1,075,000
                       at a fixed rate of 6.99% at December 31, 1998  (average         =================    ==================
                         fixed  rates  of  5.67%  in  1997),  various  repayment
                         options, maturity date of May 16, 2005.
</TABLE>

                  The   advances   from  the   Federal   Home   Loan   Bank  are
                  collateralized  by the pledging of first mortgage  loans.  The
                  advances  must  be  fully  secured   after   discounting   the
                  qualifying loans at 75% of the principal balance outstanding.

                  Other  borrowings at December 31, 1998 have maturities for the
                  succeeding five years as follows:

                     Year ending December 31,
                        1999                                    $        10,000
                        2000                                             10,000
                        2001                                             10,000
                        2002                                             10,000
                        2003                                             10,000
                        Later years                                      15,000
                                                               ----------------
                                                                $        65,000
                                                               ================


                                      F-16
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.  NOTES PAYABLE TO DIRECTORS

                  Notes  payable to directors in the amount of $500,000  consist
                  of notes which were executed on December 26, 1996. Each of the
                  notes accrues interest at the Bank's prime rate less 1%. There
                  are no  scheduled  principal or interest  payments  during the
                  first two years of the notes.  Principal and interest payments
                  in  years   three   through   five  are   subject  to  certain
                  restrictions  relative to the Bank's  earnings and  regulatory
                  capital  position.  Each of the notes  matures on December 27,
                  2001.

NOTE 8.  EMPLOYEE BENEFIT PLAN

                  The  Bank has a  401(k)  salary  deferral  plan  which  allows
                  employees  to defer up to 15% of their  salary with  partially
                  matching Bank  contributions.  Bank contributions to this plan
                  charged to expense amounted to $16,015 and $10,813 in 1998 and
                  1997, respectively.

NOTE 9.  INCOME TAXES

                  The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                       --------------------------------------
                                                                                              1998                  1997
                                                                                       -----------------    -----------------

                      <S>                                                              <C>                  <C>             
                      Current ........................................................ $        171,082     $              -
                      Deferred .......................................................          173,529              176,680
                                                                                       -----------------    -----------------
                                                                                       $        344,611     $        176,680
                                                                                       =================    =================
</TABLE>
                  The  Company's  provision  for income  taxes  differs from the
                  amounts  computed by applying the Federal income tax statutory
                  rates to income before income taxes. A  reconciliation  of the
                  differences is as follows:
<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                       -------------------------------------------------------
                                                                                 1998                         1997
                                                                       -------------------------    --------------------------
                                                                         Amount        Percent         Amount        Percent
                                                                       ------------   ----------    --------------  ----------

                       <S>                                             <C>             <C>          <C>              <C> 
                       Tax provision at statutory rate ............... $   321,738        34 %      $     176,117       34 %
                       Increase resulting from:
                          Other items, net ...........................      22,873         2                  563        -
                                                                       ------------   ----------    --------------  ----------
                       Provision for income taxes .................... $   344,611        36 %      $     176,680       34 %
                                                                       ============   ==========    ==============  ==========
</TABLE>
                                      F-17
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.  INCOME TAXES (Continued)

                  The components of deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                      ---------------------------------------
                                                                                            1998                  1997
                                                                                      -----------------     -----------------
                    <S>                                                               <C>                   <C>   
                     Deferred tax assets:
                        Loan loss reserves .......................................... $        256,143      $        256,143
                         Net operating loss carryover ...............................                -               200,795
                        Nonaccrual interest .........................................           26,381                     -
                                                                                      -----------------     -----------------
                            
                                                                                               282,524               456,938
                                                                                      -----------------     -----------------

                     Deferred tax liabilities:
                        Depreciation ................................................           80,192                83,377
                        Other .......................................................            2,300                     -
                        Unrealized gain on securities available for sale ............            7,000                 5,134
                                                                                      -----------------     -----------------
                                                                                                89,492                88,511
                                                                                      -----------------     -----------------

                     Net deferred tax assets ........................................ $        193,032      $        368,427
                                                                                      =================     =================

</TABLE>

 NOTE 10.         STOCK WARRANTS AND STOCK OPTION PLAN

                  Stock Warrants

                     In   recognition   of  the  efforts  and  financial   risks
                     undertaken by the Company's organizers, the Company granted
                     each  organizer  an  opportunity  to purchase  one share of
                     common  stock  for  each  share  purchased  by  them in the
                     Company's  common  stock  offering.   The  warrants  became
                     exercisable  on the date the Bank opened for  business  and
                     are  exercisable in whole or in part at any time during the
                     ten year period  following  that date, at an exercise price
                     equal to $10 per share unless the Bank is required to raise
                     capital to meet  regulatory  guidelines.  In the event this
                     occurs,  the exercise  price will be the greater of $10 per
                     share or the book  value per share of the  common  stock as
                     reflected in the Company's  quarterly  financial report for
                     the quarter ended  immediately prior to the exercise of the
                     warrant.  The warrants are  nontransferable,  other than by
                     will or the laws of descent  and  distribution,  but shares
                     issued  pursuant  to  the  exercise  of  warrants  will  be
                     transferable,   subject  to  compliance   with   applicable
                     securities laws.

                                      F-18
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK WARRANTS AND STOCK OPTION PLAN (Continued)

                  Stock Option Plan

                     The  Company  approved  a Stock  Option  Plan in 1997  that
                     allows the Company to grant  non-qualified stock options up
                     to 125,000  shares of common  stock to key  employees.  The
                     Stock  Option  Plan  will be  administered  by the Board of
                     Directors  of the Company and will provide for the granting
                     of  options  to  purchase  shares  of the  common  stock to
                     officers  and other key  employees  of the  Company and its
                     subsidiary.  Options will be exercisable upon such terms as
                     may be  determined  by the  body  administering  the  Stock
                     Option  Plan,  but  in  any  event,  all  options  will  be
                     exercisable  no later  than  ten  years  after  the date of
                     grant.

                    A summary of the status of the plan at  December  31,  1998
                    and 1997 and  changes  during the years  ended on those 
                    dates is as follows:

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                  ------------------------------------------------------------
                                                                              1998                           1997
                                                                  -----------------------------   ----------------------------
                                                                                  Weighted-                      Weighted-
                                                                                   Average                        Average
                                                                                   Exercise                       Exercise
                                                                    Number          Price           Number         Price
                                                                  -----------   ---------------   -----------  ---------------

                        <S>                                       <C>           <C>               <C>          <C>           
                        Under option, beginning of year .........    188,066    $        10.00       148,426   $        10.00
                           Granted ..............................     20,759             10.00        39,640            10.00
                           Exercised ............................     (5,463)            10.00             -                -
                                                                  -----------                     -----------
                  
                        Under option, end of year ...............    203,362             10.00       188,066            10.00
                                                                  ===========                     ===========

                        Exercisable at end of year ..............    184,978                         171,399
                                                                  ===========                     ===========
                                                             

                        Available for grant at end of year ......     64,601                          85,360
                                                                  ===========                     ===========
                                                          

                        Weighted-average fair value per option
                           of options granted during the year ...     $ 3.97                          $ 4.53
                                                                  ===========                     ===========
</TABLE>

                                      F-19
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK WARRANTS AND STOCK OPTION PLAN (Continued)

                  Stock Option Plan (Continued)

                  A further  summary about options  outstanding  at December 31,
                  1998 and 1997 is as follows:

<TABLE>
<CAPTION>


                                                                  December 31, 1998
                        ------------------------------------------------------------------------------------------------------
                                                            Options Outstanding                         Options Exercisable
                                         --------------------------------------------------   --------------------------------
                    
                            Range                             Weighted-        Weighted-                          Weighted-
                             of                                Average          Average                            Average
                          Exercise           Number          Contractual       Exercise           Number          Exercise
                           Prices          Outstanding      Life in Years        Price         Outstanding          Price
                        --------------   ----------------   --------------   --------------   ---------------   --------------
    <S>                 <C>              <C>                <C>              <C>              <C>               <C>                
                        $       10.00            142,963              2.9    $       10.00           142,963    $       10.00
                                10.00             25,000              8.3            10.00            16,666            10.00
                                10.00             14,640              9.0            10.00            14,640            10.00
                                10.00             10,259             10.0            10.00            10,259            10.00
                                10.00              4,500              9.5            10.00               450            10.00
                                10.00              6,000             10.0            10.00                 -            10.00
                                         ----------------                                     ---------------
                                                 203,362             4.72            10.00           184,978            10.00
                                         ================                                     ===============


                                                                  December 31, 1997
                        ------------------------------------------------------------------------------------------------------
                                                        Options Outstanding                         Options Exercisable
                                         --------------------------------------------------   --------------------------------
                            Range                             Weighted-        Weighted-                          Weighted-
                             of                                Average          Average                            Average
                          Exercise           Number          Contractual       Exercise           Number          Exercise
                           Prices          Outstanding      Life in Years        Price         Outstanding          Price
                        --------------   ----------------   --------------   --------------   ---------------   --------------

                        $       10.00            148,426              3.9    $       10.00           148,426    $       10.00
                                10.00             25,000              9.3            10.00             8,333            10.00
                                10.00             14,640             10.0            10.00            14,640            10.00
                                         ----------------                                     ---------------
                                                 188,066             5.09            10.00           171,399            10.00
                                         ================                                     ===============
</TABLE>


                                      F-20
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 10. STOCK WARRANTS AND STOCK OPTION PLAN (Continued)

                  As permitted by Statement of Financial Accounting Standard No.
                  123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
                  the  Company  recognizes  compensation  cost  for  stock-based
                  employee  compensation  awards in accordance  with APB Opinion
                  No.  25,  "Accounting  for  Stock  Issued to  Employees".  The
                  company   recognized  no  compensation  cost  for  stock-based
                  employee  compensation awards for the years ended December 31,
                  1998 and 1997. If the Company had recognized compensation cost
                  in accordance with SFAS No. 123, net income and net income per
                  share on a basic and diluted  basis would have been reduced as
                  follows:

<TABLE>
<CAPTION>

  
                                                                                     December 31,
                                                          -------------------------------------------------------------------
                                                                        1998                              1997
                                                          ---------------------------------  --------------------------------
                                                                                Basic                            Basic and
                                                                              and Diluted                       Diluted Net
                                                               Net            Net Income           Net             Income
                                                              Income          Per Share          Income          Per Share
                                                          ---------------   ---------------  ----------------   -------------

                      <S>                                 <C>               <C>              <C>                <C>         
                      As reported                         $      601,678    $         1.47   $       341,310    $       0.84
                      Stock based compensation,
                         net of related tax effect               (52,976)            (0.13)          (68,725)          (0.17)
                                                          ---------------   ---------------  ----------------   -------------
                      As adjusted                         $      548,702    $         1.34   $       272,585    $       0.67
                                                          ===============   ===============  ================   =============
</TABLE>

                  The fair value of the  options  granted in 1998 was based upon
                  the discounted value of future cash flows of the options using
                  the following assumptions:

                     Risk-free interest rate                            5.12%
                     Expected life of the options                    10 years
                     Expected dividends (as a percent of the fair
                      value of the stock)                               0.00%
                     Expected volatility                                0.00%


                                      F-21
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.          COMMITMENTS AND CONTINGENT LIABILITIES

                  In the normal  course of  business,  the Bank has entered into
                  off-balance-sheet   financial   instruments   which   are  not
                  reflected  in  the  financial   statements.   These  financial
                  instruments  include  commitments to extend credit and standby
                  letters of credit. Such financial  instruments are included in
                  the  financial  statements  when  funds are  disbursed  or the
                  instruments  become payable.  These  instruments  involve,  to
                  varying  degrees,  elements  of  credit  risk in excess of the
                  amount recognized in the balance sheet.

                  The  Bank's   exposure   to  credit   loss  in  the  event  of
                  nonperformance by the other party to the financial  instrument
                  for commitments to extend credit and standby letters of credit
                  is represented by the contractual amount of those instruments.
                  The Bank uses the same  credit  and  collateral  policies  for
                  these  off-balance-sheet  financial instruments as it does for
                  on-balance-sheet  financial  instruments.  A  summary  of  the
                  Bank's commitments is as follows:

<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                      --------------------------------------
                                                                                             1998                 1997
                                                                                      -----------------    -----------------

                      <S>                                                             <C>                  <C>             
                      Commitments to extend credit .................................. $      4,959,000     $      4,746,000
                      Standby letters of credit .....................................          120,000               12,300
                                                                                      -----------------    -----------------
                                                                                      $      5,079,000     $      4,758,300
                                                                                      =================    =================

</TABLE>
                  Commitments to extend credit  generally have fixed  expiration
                  dates or other termination  clauses and may require payment of
                  a fee.  Since many of the  commitments  are expected to expire
                  without being drawn upon, the total commitment  amounts do not
                  necessarily  represent  future cash  requirements.  The credit
                  risk  involved  in  issuing  these  financial  instruments  is
                  essentially  the same as that  involved in extending  loans to
                  customers. The Bank evaluates each customer's creditworthiness
                  on a case-by-case basis. The amount of collateral obtained, if
                  deemed  necessary  by the Bank upon  extension  of credit,  is
                  based  on  management's  credit  evaluation  of the  customer.
                  Collateral  held  varies  but  may  include  real  estate  and
                  improvements,    crops,   marketable   securities,    accounts
                  receivable, inventory, equipment, and personal property.

                                      F-22
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 11.          COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

                  Standby letters of credit are conditional  commitments  issued
                  by the Bank to guarantee  the  performance  of a customer to a
                  third party.  Those guarantees are primarily issued to support
                  public and  private  borrowing  arrangements.  The credit risk
                  involved in issuing  letters of credit is essentially the same
                  as that  involved in extending  loan  facilities to customers.
                  Collateral  held varies as specified  above and is required in
                  instances which the Bank deems necessary.

                  In the normal  course of business,  the Company is involved in
                  various legal proceedings. In the opinion of management of the
                  Company,  any liability  resulting from such proceedings would
                  not  have  a  material  effect  on  the  Company's   financial
                  statements.


NOTE 12.          CONCENTRATIONS OF CREDIT

                  The Bank originates  primarily  commercial,  residential,  and
                  consumer   loans  to  customers  in  the  Coffee   County  and
                  surrounding  counties.  The  ability  of the  majority  of the
                  Bank's  customers to honor their  contractual loan obligations
                  is   dependent   on  the  economy  in  Douglas,   Georgia  and
                  surrounding areas.

                  Although the Bank's loan portfolio is diversified,  there is a
                  relationship in this region between the  agricultural  economy
                  and the economic  performance of loans made to nonagricultural
                  customers.  The Bank's lending  policies for  agricultural and
                  nonagricultural     customers     require    loans    to    be
                  well-collateralized  and  supported by cash flows.  Collateral
                  for agricultural loans include equipment, crops, livestock and
                  land.  Credit  losses from loans  related to the  agricultural
                  economy  is  taken  into   considerations   by  management  in
                  determining the allowance for loan losses.

                  A  substantial  portion  of these  loans are  secured  by real
                  estate in the Bank's  primary  market  area.  In  addition,  a
                  substantial  portion of the other real estate owned is located
                  in   those   same   markets.    Accordingly,    the   ultimate
                  collectibility  of the loan  portfolio and the recovery of the
                  carrying  amount of other real estate owned are susceptible to
                  changes  in market  conditions  in the Bank's  primary  market
                  area. The other  significant  concentrations of credit by type
                  of loan are set forth in Note 3.



                                      F-23
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.          CONCENTRATIONS OF CREDIT (Continued)

                  The  Bank has a  concentration  of  funds  on  deposit  at its
                  primary  correspondent bank, Georgia Bankers Bank, at December
                  31, 1998 and 1997, as follows:

<TABLE>
<CAPTION>

                                                                            
                                                                                                    December 31,
                                                                                       ---------------------------------------
                                                                                               1998                1997
                                                                                       -------------------  ------------------

                     <S>                                                               <C>                  <C>              
                      Federal funds sold ............................................. $        5,930,000   $               -
                      Correspondent commercial checking account ......................          4,382,000           3,524,698
                                                                                       -------------------  ------------------
                                                                                       $       10,312,000   $       3,524,698
                                                                                       ===================  ==================

</TABLE>

NOTE 13. Regulatory Matters

                  The Bank is subject to certain  restrictions  on the amount of
                  dividends  that  may  be  declared  without  prior  regulatory
                  approval.  Currently,  no  dividends  may be paid by the  Bank
                  without regulatory approval.

                  The Bank is subject to various regulatory capital requirements
                  administered by the federal banking agencies.  Failure to meet
                  minimum capital  requirements can initiate certain  mandatory,
                  and possibly additional  discretionary,  actions by regulators
                  that, if undertaken,  could have a direct  material  effect on
                  the financial  statements.  Under capital adequacy  guidelines
                  and the regulatory framework for prompt corrective action, the
                  Bank  must  meet  specific  capital  guidelines  that  involve
                  quantitative measures of the assets, liabilities,  and certain
                  off-balance-sheet   items  as  calculated   under   regulatory
                  accounting   practices.   The  Bank's   capital   amounts  and
                  classification  are also subject to  qualitative  judgments by
                  the regulators about  components,  risk weightings,  and other
                  factors.

                  Quantitative  measures  established  by  regulation  to ensure
                  capital  adequacy require the Bank to maintain minimum amounts
                  and ratios of total and Tier I capital to risk-weighted assets
                  and of Tier I capital to average assets.  Management believes,
                  as of December 31, 1998,  the Bank meets all capital  adequacy
                  requirements to which it is subject.

                                      F-24
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 13. REGULATORY MATTERS (Continued)

                  As of December 31, 1998, the most recent notification from the
                  OCC  categorized  the  Bank  as  well  capitalized  under  the
                  regulatory  framework  for  prompt  corrective  action.  To be
                  categorized  as  well  capitalized,  the  Bank  must  maintain
                  minimum  total  risk-based,  Tier  I  risk-based,  and  Tier I
                  leverage ratios as set forth in the following table. There are
                  no   conditions  or  events  since  that   notification   that
                  management believes have changed the Bank's category.

                  Presented  below are the Bank's  actual  capital  amounts  and
                  ratios.  Detail  disclosures  related to the Company have been
                  excluded as they do not materially deviate from the disclosure
                  herein.

<TABLE>
<CAPTION>

                                                                                                           To Be Well
                                                                                 For Capital            Capitalized Under
                                                                                  Adequacy              Prompt Corrective
                                                       Actual                     Purposes              Action Provisions
                                             ----------------------------  ------------------------ --------------------------
                                                 Amount          Ratio        Amount        Ratio       Amount        Ratio
                                             ----------------  ----------  --------------  -------- ---------------  ---------

                  <S>                         <C>              <C>         <C>             <C>      <C>              <C>        
                  As of December 31, 1998                                                   
                    Total Capital
                       (to Risk Weighted
                  Assets):
                     Consolidated            $     4,421,388      11.46%   $   3,085,233     8.00%  $    3,856,542     10.00%
                       FNB of Coffee County  $     4,860,365      12.60%   $   3,085,233     8.00%  $    3,856,542     10.00%
                    Tier I Capital
                       (to Risk Weighted
                  Assets):
                     Consolidated            $     3,929,540      10.19%   $   1,542,617     4.00%  $    2,313,925      6.00%
                       FNB of Coffee County  $     4,368,517      11.33%   $   1,542,617     4.00%  $    2,313,925      6.00%
                    Tier I Capital
                       (to Average Assets):
                     Consolidated            $     3,929,540       7.22%   $   2,177,480     4.00%  $    2,721,850      5.00%
                       FNB of Coffee County  $     4,368,517       8.02%   $   2,177,480     4.00%  $    2,721,850      5.00%
</TABLE>


                                      F-25
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. REGULATORY MATTERS (Continued)

<TABLE>
<CAPTION>

                                                                                                           To Be Well
                                                                                For Capital            Capitalized Under
                                                                                  Adequacy             Prompt Corrective
                                                        Actual                    Purposes             Action Provisions
                                              ---------------------------  ----------------------- ---------------------------
                                                  Amount         Ratio        Amount       Ratio       Amount         Ratio
                                              ---------------  ----------  --------------  ------- ----------------  ---------

                  <S>                         <C>              <C>         <C>             <C>     <C>               <C>          
                  As of December 31, 1997                                                   
                    Total Capital
                       (to Risk Weighted
                  Assets):
                     Consolidated             $    3,659,147      12.16%   $   2,407,998    8.00%  $     3,009,998     10.00%
                       FNB of Coffee County   $    4,114,175      13.68%   $   2,405,746    8.00%  $     3,007,183     10.00%
                    Tier I Capital
                       (to Risk Weighted
                  Assets):
                     Consolidated             $    3,273,232      10.87%   $   1,203,999    4.00%  $     1,805,999      6.00%
                       FNB of Coffee County   $    3,728,607      12.40%   $   1,202,873    4.00%  $     1,804,310      6.00%
                    Tier I Capital
                       (to Average Assets):
                     Consolidated             $    3,273,232       7.23%   $   1,810,040    4.00%  $     2,262,550      5.00%
                       FNB of Coffee County   $    3,728,607       8.24%   $   1,810,040    4.00%  $     2,262,550      5.00%

</TABLE>
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The following methods and assumptions were used by the Company
                  in  estimating  its  fair  value   disclosures  for  financial
                  instruments.  In cases  where  quoted  market  prices  are not
                  available, fair values are based on estimates using discounted
                  cash flow methods. Those methods are significantly affected by
                  the  assumptions  used,   including  the  discount  rates  and
                  estimates of future cash flows.  In that  regard,  the derived
                  fair value estimates  cannot be substantiated by comparison to
                  independent  markets and, in many cases, could not be realized
                  in  immediate  settlement  of  the  instrument.   The  use  of
                  different  methodologies  may have a  material  effect  on the
                  estimated fair value amounts.  Also, the fair value  estimates
                  presented herein are based on pertinent  information available
                  to management  as of December 31, 1998 and 1997.  Such amounts
                  have  not  been  revalued  for  purposes  of  these  financial
                  statements since those dates and, therefore, current estimates
                  of fair  value  may  differ  significantly  from  the  amounts
                  presented herein.

                                      F-26
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

                  The following methods and assumptions were used by the Company
                  in  estimating   fair  values  of  financial   instruments  as
                  disclosed herein:

                  Cash, Due From Banks, and Federal Funds Sold:

                     The carrying  amounts of cash, due from banks,  and Federal
                     funds sold approximate their fair value.

                  Available For Sale Securities:

                     Fair  values  for  securities  are based on  quoted  market
                     prices.  The carrying  values of equity  securities with no
                     readily determinable fair value approximate fair values.

                  Loans:

                     For variable-rate loans that reprice frequently and have no
                     significant change in credit risk, fair values are based on
                     carrying  values.  For other  loans,  the fair  values  are
                     estimated  using   discounted  cash  flow  methods,   using
                     interest  rates  currently  being  offered  for loans  with
                     similar terms to borrowers of similar credit quality.  Fair
                     values for impaired  loans are estimated  using  discounted
                     cash flow methods or underlying collateral values.

                  Deposits:

                     The carrying amounts of demand deposits,  savings deposits,
                     and variable-rate certificates of deposit approximate their
                     fair values.  Fair values for  fixed-rate  certificates  of
                     deposit are estimated  using  discounted cash flow methods,
                     using   interest   rates   currently   being   offered   on
                     certificates.

                                      F-27
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

                  Other Borrowings:

                     The  carrying  amounts of the  Company's  other  borrowings
                     approximate their fair value.

                  Off-Balance Sheet Instruments:

                     Fair values of the Company's  off-balance  sheet  financial
                     instruments are based on fees charged to enter into similar
                     agreements.  However,  commitments  to  extend  credit  and
                     standby  letters of credit do not  represent a  significant
                     value to the Company until such commitments are funded. The
                     Company has determined that these instruments do not have a
                     distinguishable  fair  value  and no fair  value  has  been
                     assigned.

                     The  carrying   value  and  estimated  fair  value  of  the
                     Company's financial instruments were as follows:

<TABLE>
<CAPTION>


                                                              December 31, 1998                    December 31, 1997
                                                       ---------------------------------   ----------------------------------
                                                          Carrying            Fair              Carrying            Fair
                                                           Amount            Value               Amount            Value
                                                       ----------------  ---------------   -----------------  ---------------
                                                      
                  <S>                                  <C>               <C>               <C>                <C>
                  Financial assets:
                     Cash and short-term investments   $    11,583,359   $   11,583,359    $      4,958,600   $    4,958,600
                                                       ================  ===============   =================  ===============

                     Investments in securities ......  $     4,753,962   $    4,753,962    $      6,499,422   $    6,499,422
                                                       ================  ===============   =================  ===============
                                                    

                     Loans ..........................  $    41,989,950   $   40,869,961    $     31,679,747   $   31,458,423
                     Allowance for loan losses ......        1,274,285                -           1,159,173                -
                                                       ----------------  ---------------   -----------------  ---------------
                                               
                                Loans, net ..........  $    40,715,665   $   40,869,961    $     30,520,574   $   31,458,423
                                                       ================  ===============   =================  ===============
                                                  
                  Financial liabilities:
                     Noninterest-bearing demand .....  $    12,695,085   $   12,695,085    $      7,708,349   $    7,708,349
                     Interest-bearing demand ........       11,707,125       11,707,125           6,819,767        6,819,767
                     Savings ........................        1,973,434        1,973,434           1,832,359        1,832,359
                     Time deposits ..................       27,924,709       28,070,996          22,687,524       22,994,718
                                                       ----------------  ---------------   -----------------  ---------------
                                                    
                                Total deposits ......  $    54,300,353   $   54,446,640    $     39,047,999   $   39,355,193
                                                       ================  ===============   =================  ===============
                                                  
                  Federal funds purchased ...........  $             -   $            -    $        430,000   $      430,000
                                                       ================  ===============   =================  ===============
                                                   
                  Other borrowings ..................  $        65,000   $       65,000    $      1,075,000   $    1,075,000
                                                       ================  ===============   =================  ===============
                  Notes payable, director ...........  $       500,000   $      500,000    $        500,000   $      500,000
                                                       ================  ===============   =================  ===============
</TABLE>

                                      F-28
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. YEAR 2000

                  The  Company is  currently  working to resolve  the  potential
                  impact of the Year 2000 on the  processing  of  date-sensitive
                  information by the Company's computerized information systems.
                  The Year 2000 problem is the result of computer programs being
                  written  using two  digits  (rather  than  four) to define the
                  applicable year. Any of the Company's  computer  programs that
                  have  date-sensitive  software may recognize a date using "00"
                  as the year 1900  rather  than the year 2000.  Due to the fact
                  that the Company is heavily  dependent on computer  processing
                  and   telecommunication   systems  in  their  daily   business
                  activities,   this  could  result  in  a  system   failure  or
                  miscalculations causing disruptions of operations,  including,
                  among  other   things,   a  temporary   inability  to  process
                  transactions or engage in normal business activities.

                  In response to the Year 2000 issue, the Company created a Year
                  2000  Task  Force to  coordinate  and  monitor  the  Company's
                  progress  in their  Year 2000  remediation  efforts.  The Task
                  Force reports directly to the Company's  executive  management
                  and also provides  regular  reports to the Board of Directors.
                  The Task Force has  conducted  a  comprehensive  review of the
                  Company's  computer  systems  and  software  to  identify  the
                  systems and  software  that could be effected by the Year 2000
                  issue.  Although  absolute  assurance  cannot  be  given,  the
                  Company  presently  believes  that with the  modifications  to
                  existing  systems and software and converting to new software,
                  the Year 2000 problem will not pose a significant  operational
                  problem to the  Company or have a material  adverse  effect on
                  future operating results.

                  The Company has also conducted formal  communications with its
                  significant  suppliers and large  customers to determine their
                  plans to  address  the Year  2000  issue.  While  the  Company
                  expects a successful resolution of all issues, there can be no
                  guarantee  that the  systems of other  companies  on which the
                  Company's  systems rely will be converted in a timely  manner,
                  or that a failure to convert by a supplier or customer,  would
                  not have a material adverse effect on the Company.








                                      F-29

<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







NOTE 16. PARENT COMPANY FINANCIAL INFORMATION

                  The  following  information  presents  the  condensed  balance
                  sheets of FNC Bancorp,  Inc. and statements of income and cash
                  flows as of and for the  years  ended  December  31,  1998 and
                  1997.

<TABLE>
<CAPTION>

                                                       CONDENSED BALANCE SHEETS
                                                                                               1998                 1997
                                                                                       ------------------    -----------------

                   <S>                                                                 <C>                   <C>   
                   Assets
                      Cash ........................................................... $         136,439     $         55,294
                      Investment in subsidiary .......................................         4,382,517            3,738,573
                      Other assets ...................................................                 -               27,876
                                                                                       ------------------    -----------------

                              Total assets ........................................... $       4,518,956     $      3,821,743
                                                                                       ==================    =================

                   Liabilities:
                      Notes payable, directors ....................................... $         500,000     $        500,000
                      Other liabilities ..............................................            75,416               38,545
                                                                                       ------------------    -----------------

                              Total liabilities ......................................           575,416              538,545
                                                                                       ------------------    -----------------

                   Stockholders' equity ..............................................         3,943,540            3,283,198
                                                                                       ------------------    -----------------

                              Total liabilities and stockholders' equity ............. $       4,518,956     $      3,821,743
                                                                                       ==================    =================

</TABLE>


                                      F-30
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







NOTE 16. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>

                                                    CONDENSED STATEMENTS OF INCOME

                                                                                              1998                 1997
                                                                                      ------------------    -----------------

                   <S>                                                                <C>                   <C>             
                   Income, interest ................................................. $           2,467     $          2,522
                                                                                      ------------------    -----------------

                   Expense
                      Interest ......................................................            36,872               38,545
                      Other expense .................................................            20,674               13,819
                                                                                      ------------------    -----------------
                                                                                                 57,546               52,364
                                                                                      ------------------    -----------------

                              Loss before income tax benefits and
                                  equity in undistributed earnings
                                                     of subsidiary ..................           (55,079)             (49,842)

                   Income tax benefits ..............................................           (16,847)             (16,950)
                                                                                      ------------------    -----------------

                              Loss before equity in undistributed
                                   earnings of subsidiary ...........................           (38,232)             (32,892)

                   Equity in undistributed earnings  of subsidiary ..................           639,910              374,202
                                                                                      ------------------    -----------------

                              Net income ............................................ $         601,678     $        341,310
                                                                                      ==================    =================
</TABLE>


                                      F-31
<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 16. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>

                                                  CONDENSED STATEMENTS OF CASH FLOWS

                                                                                             1998                   1997
                                                                                     -------------------    -------------------
                    <S>                                                              <C>                    <C>    
                    OPERATING ACTIVITIES
                       Net income .................................................  $          601,678     $          341,310
                                                                                     -------------------    -------------------
                       Adjustments to reconcile  net income to net cash provided
                          by (used in) operating activities:
                          Undistributed earnings of subsidiary ....................            (639,910)              (374,202)
                          (Increase) decrease  in deferred tax assets .............              27,876                (16,950)
                          Increase  in interest payable ...........................              36,871                 38,545
                                                                                     -------------------    -------------------
                                                                                   
                            Total adjustments .....................................            (575,163)              (352,607)
                                                                                     -------------------    -------------------

                            Net cash provided by (used in) operating activities ...              26,515                (11,297)
                                                                                     -------------------    -------------------

                    FINANCING ACTIVITIES
                       Proceeds from issuance of common stock .....................              54,630                      -
                                                                                     -------------------    -------------------
                                                                                  

                            Net cash provided by financing activities .............              54,630                      -
                                                                                     -------------------    -------------------
                                                                                    

                    Net increase (decrease) in cash ...............................              81,145                (11,297)

                    Cash at beginning of year .....................................              55,294                 66,591
                                                                                     -------------------    -------------------

                    Cash at end of year ...........................................  $          136,439     $           55,294
                                                                                     ===================    ===================
</TABLE>

                                      F-32


<PAGE>